Increased Cost of Compliance (ICC) Coverage

Increased Cost of Compliance (ICC) Coverage

After a major flood, owners often face a double crisis: repairing flood damage and bringing a noncompliant building up to current floodplain management standards because the structure was substantially damaged. Direct physical damage payments under the SFIP restore the building to pre-damage condition (subject to policy terms); they do not automatically pay the extra cost of elevating a house, relocating it, or demolishing it because the community’s ordinance now requires compliance. Increased Cost of Compliance (ICC) coverage exists to help bridge that gap.

Why ICC Exists

Floodplain ordinances require that substantially improved or substantially damaged structures in the SFHA be brought into compliance with current standards for new construction—typically elevation to or above the BFE (plus freeboard if adopted), or other zone-appropriate standards (including dry floodproofing options for certain non-residential buildings). Compliance can cost far more than simply replacing damaged drywall. Without a funding mechanism, communities face political pressure to waive standards, and owners face impossible choices. ICC, built into the SFIP for eligible buildings, provides a defined benefit to help pay those compliance costs when policy conditions are met.

What ICC Pays For: Eligible Mitigation Measures

Under the SFIP’s ICC provisions, eligible activities generally include:

1. Elevation — Raising the structure so the lowest floor (or lowest horizontal structural member in V zones, as applicable) meets ordinance elevation requirements.
2. Demolition — Razing the structure (often followed by rebuilding to code on the same site or as the community allows).
3. Relocation — Moving the structure out of the SFHA or to a compliant location.
4. Floodproofing — Dry floodproofing measures where permitted (commonly limited to non-residential buildings and not a substitute for elevation where residential elevation is required).

ICC is not a blank check for kitchen upgrades, luxury remodels, or voluntary aesthetic improvements. Eligible costs are those necessary to achieve compliance with the floodplain management law or ordinance as triggered under the policy.

The Dollar Limit: Up to $30,000

CFM candidates should know the commonly tested ICC limit: up to $30,000 under the SFIP for Increased Cost of Compliance coverage (subject to the policy’s exact terms, deductibles, and conditions). Critical nuances:

• ICC is in addition to the claim payment for direct physical damage, but total recovery remains constrained by policy rules and cannot be treated as unlimited stacking beyond what the SFIP allows.
• The $30,000 figure is a maximum benefit, not an automatic payment. Documented eligible compliance costs drive the amount.
• ICC does not increase the Building coverage limit for ordinary physical damage (the residential Building max remains the separate Building limit, e.g., $250,000 traditionally).

Scenario: A Zone AE dwelling insured for $200,000 Building coverage sustains $120,000 in physical flood damage. The community determines substantial damage. Ordinance compliance requires elevation estimated at $55,000 extra. Physical damage is adjusted under Building coverage; ICC may contribute up to $30,000 toward eligible compliance costs—leaving a remaining gap the owner must cover through savings, grants (e.g., Hazard Mitigation Assistance), or other means.

ICC Triggers: Substantial Damage, Substantial Improvement Context, and Repetitive Loss

ICC is claim-driven and policy-defined. Conceptually, triggers include:

Substantial Damage

When a building in the SFHA is damaged by flood such that the cost to restore it to its before-damaged condition equals or exceeds 50% of market value (the classic substantial damage threshold used in NFIP minimum standards and local ordinances), the community requires compliance. That local determination is central: ICC supports compliance required by the community, so floodplain administrators must perform careful, defensible substantial damage determinations (Chapter 4).

Repetitive Loss Conditions Under the Policy

The SFIP also addresses certain repetitive loss situations for ICC—generally involving multiple flood losses over a period of years that meet policy thresholds (often described in training materials as two or more losses within a 10-year period that meet percentage-of-value criteria, subject to exact SFIP language). The CFM takeaway: ICC is not only for catastrophic one-time substantial damage; repetitive flooding that meets policy triggers can also open ICC pathways when the community requires mitigation compliance.

Floodplain Management Compliance Requirement

ICC pays for measures required to comply with a state or local floodplain management law or ordinance. If no compliance obligation exists—or if the building is not in a situation the policy recognizes—ICC will not fund voluntary elevation “just because it seems wise.” (Voluntary elevation may still be excellent risk reduction and may qualify for other mitigation grants, but that is not the same as an ICC claim benefit.)

Conditions and Practical Requirements

For ICC to work in the field, several conditions typically align:

Floodplain managers should maintain complete permit files, market value documentation, damage cost estimates, photographs, and written substantial damage determinations. Insurers and owners rely on that record. Poor documentation delays ICC and undermines enforcement.

Coordination with Mitigation Grants and Local Enforcement

ICC alone often underfunds full elevation projects. Effective recovery programs stack resources carefully:

• SFIP direct physical damage payment
• ICC (up to $30,000 for compliance)
• FEMA Hazard Mitigation Assistance (FMA, BRIC, HMGP) for elevation, acquisition, or mitigation reconstruction where eligible
• State/local funds, SBA loans, or owner equity

CFMs must avoid double-dipping conflicts and must ensure work permitted under the ordinance matches what ICC and grants will fund. Demolition/rebuild versus elevation choices should be evaluated against zone standards, historic structures rules, and benefit-cost realities (Chapter 6).

Common Misconceptions

1. “ICC pays my entire elevation.” Not necessarily—cap is commonly $30,000; projects often cost more.
2. “Any flooded building gets ICC.” The building must be insured, meet SFIP triggers, and face a compliance requirement.
3. “ICC is a FEMA grant administered by the floodplain office.” ICC is insurance coverage paid through the SFIP claim process by the insurer, though local determinations unlock the compliance need.
4. “Residential dry floodproofing will always qualify.” Residential buildings generally must be elevated; dry floodproofing is primarily a non-residential compliance path where allowed.
5. “If we skip the substantial damage determination, we save the owner trouble.” Skipping determinations can violate the community’s NFIP obligations and may block proper ICC use while increasing future risk and sanctions exposure.

Floodplain Manager Action Steps After a Flood

1. Implement the community’s substantial damage inspection plan (door-to-door or prioritized).
2. Use consistent market value and cost methodologies; document everything.
3. Issue written determinations and explain compliance options (elevate, demolish, relocate, floodproof if allowed).
4. Refer owners to their flood insurer to open claims and inquire about ICC.
5. Issue permits for mitigation work; inspect for compliance; update elevation certificates.
6. Track repetitive loss properties for future mitigation planning (CRS and HMA synergies).

Exam Focus Summary

Link ICC to substantial damage / compliance, know the $30,000 benefit concept, list elevation, demolition, relocation, and floodproofing, and remember that local administration of SI/SD rules is what makes ICC meaningful. Insurance adjusters pay ICC; floodplain managers create the regulatory pathway and documentation trail that justify compliance work.