The coinsurance penalty is the real exposure

The association-level product is the Residential Condominium Building Association Policy, and Article VII of the standard policy form imposes a penalty for underinsuring:

“B. We will impose a penalty on loss payment unless the amount of insurance applicable to the damaged building is: 1. At least 80 percent of its replacement cost; or 2. The maximum amount of insurance available for that building under the NFIP, whichever is less.”

And the arithmetic when you fall short: “C. If the actual amount of insurance on the building is less than the required amount…1. Divide the actual amount of insurance carried on the building by the required amount of insurance. 2. Multiply the amount of loss, before application of the deductible, by the figure determined in C.1 above. 3. Subtract the deductible from the figure determined in C.2 above.”

FEMA's own worked example: replacement value $250,000; required insurance $200,000; carried $180,000; loss $150,000; deductible $500. The policy pays $134,500, and “[t]he remaining $15,500 is not covered due to the coinsurance penalty ($15,000) and application of the deductible ($500).”

The 80 percent test runs against replacement cost at the time of loss — not what the building cost, and not what the board insured it for three years ago. In a construction-cost environment that has moved sharply, an Ohio association that has not refreshed its replacement-cost figure may already be below 80 percent and will find out only when a claim is prorated. Our Ohio insurance requirements page covers the valuation duty behind that.

That problem just got worse for a separate reason: Fannie Mae and Freddie Mac retired the inflation guard requirement entirely in March 2026. The endorsement that used to nudge stated values upward each year is gone, and keeping the number current is now purely the board's job.

The limits, and the trap with unit owners

The per-building limit under the regulation is “$250,000 times the number of units in the building” for a residential condominium building in the Regular Program.

And the interaction that catches boards out: “A Dwelling Form policy with building coverage may be issued to a unit owner in a condominium building that is also insured under a Residential Condominium Building Association Policy (RCBAP). However, no more than $250,000 may be paid in combined benefits for a single unit under the Dwelling Form and the RCBAP. We will only pay for damage once.”

A unit owner who buys building coverage on top of the association's RCBAP is frequently buying coverage that will never pay. Boards that tell owners to “get their own flood policy” without distinguishing building coverage from contents coverage are giving expensive advice.

Note also that separate deductibles apply to building and personal property in each loss.

What to do in the next two weeks

Check whether any association flood transaction is pending. A new policy, an added building, an increase in limits. If so, get it bound before September 30 rather than after.

Warn any owner mid-sale. A closing in a flood zone that needs a new NFIP policy is the transaction that a lapse stalls. Sellers and agents will not hear this from anyone else in the building.

Get a current replacement-cost figure and do the 80 percent arithmetic. One calculation tells you whether every future claim will be prorated.

Do not assume a lapse will not happen, or that it will. Congress has extended the programme repeatedly, sometimes retroactively after a gap. Plan for the two weeks either side rather than for an outcome.

A currency note: this is the most perishable item on this page. It was confirmed against FEMA's own reauthorization page on September 15, 2026, and no enacted extension past September 30 was found in the public record on that date. Anyone relying on it after September 30 should re-check.