What is Increased Cost of Compliance (ICC) Coverage?
Increased Cost of Compliance (ICC) coverage is a unique and essential component of the Standard Flood Insurance Policy (SFIP) offered through the National Flood Insurance Program (NFIP). While most of a flood policy focuses on repairing or replacing damaged property to its pre-loss condition, ICC provides additional financial assistance to help policyholders comply with local floodplain management ordinances after a flood event.
When a building is damaged by a flood, local community officials may determine that the structure is substantially damaged. In such cases, the owner is required to bring the building up to current community building standards. ICC coverage provides up to $30,000 to help offset the costs associated with these mitigation measures. This coverage is included in most standard flood insurance policies and is paid in addition to the claim for direct physical loss to the building.
For those preparing for the practice Flood questions, understanding the triggers and limits of ICC is critical for the specialty exam.
ICC Coverage Key Figures
Eligibility and Triggers for ICC
Not every flood claim triggers ICC coverage. For a policyholder to be eligible to file an ICC claim, the structure must be located in a community that participates in the NFIP and the damage must meet one of two specific criteria:
- Substantial Damage: This occurs when the cost of restoring the structure to its pre-damage condition equals or exceeds a certain percentage (typically 50%) of the structure's market value before the damage occurred. The determination of substantial damage is made by local community officials, not the insurance adjuster.
- Repetitive Loss: This applies if the building is covered by a flood insurance policy and has suffered flood damage on two separate occasions where the cost of repair, on average, equaled or exceeded 25% of the market value at the time of each flood. This trigger only applies if the community has a repetitive loss provision in its local floodplain management ordinance.
It is important to note that the damage must be caused by flood. If a building is substantially damaged by fire or wind, ICC coverage under the flood policy will not apply.
The Four Approved Mitigation Activities
| Feature | Activity | Description |
|---|---|---|
| Elevation | Raising the structure to or above the Base Flood Elevation (BFE) required by the community. | |
| Relocation | Moving the entire structure to a safer location on the same lot or a different lot altogether. | |
| Demolition | Tearing down the damaged structure to clear the site, often followed by rebuilding to code. | |
| Floodproofing | Primarily for non-residential buildings; making the structure watertight below the BFE. |
Exam Tip: The Total Liability Cap
The ICC Claims Process
The ICC claim process is separate from the standard building damage claim. Policyholders generally have a specific timeframe (often two to four years) from the date of the loss to complete the mitigation project. The process typically follows these steps:
- Community Determination: The local building official inspects the property and issues a letter stating the building is substantially damaged or a repetitive loss.
- Claim Filing: The policyholder contacts their insurer to open an ICC claim.
- Submission of Plans: The policyholder provides the insurer with a signed contract for the mitigation work and a copy of the local building permit.
- Payment: In many cases, the insurer may provide a partial payment upfront to start the work, with the final payment issued once the community certifies that the building is now in compliance.
For more detailed information on policy structures, refer to our complete Flood exam guide.