We have a loan secured by two properties; a lake house located in a SFHA and their primary residence which is not in a flood zone. The loan amount is $222K. The lake house has an appraised value of $242K. The appraisal did not include a cost analysis. They currently carry coverage for flood insurance of $118K. The dwelling coverage for their homeowner's insurance is $128K.

We are trying to determine the minimum flood coverage, which in this case would presumably be based on the RCV. Since we don't have a cost approach appraisal, would it be reasonable to deduct the assessed value of the land ($122K) from the appraised value to justify an RCV of $120K (requiring the flood coverage increase by $2K)? The guidelines state that you can use "any other reasonable approach, so long as it can be supported". Would you consider this a "reasonable and supported" approach?

If not, would a reasonable fallback be to use the dwelling coverage from their homeowner's policy, as that is also one of the approaches referenced?

Market value has nothing to do with replacement cost value. What is the replacement cost currently listed on the flood insurance policy declaration?

It doesn't list replacement cost. I reached out to the insurance company to see if they had a RCV and they said "We do not provide replacement cost estimators". So, the insurance company was no help here.

Then it must be a private policy, as the RCV is a required component of a NFIP declaration page. So, you are basically on your own. A FHD should always be ordered prior to ordering an appraisal so that your appraisal engagement letter does not allow the appraisal to not address replacement costs.

Yes, it is a private policy. Would you be of the opinion that using the hazard dwelling coverage is a "reasonable and supportable" approach?

If you feel that the replacement costs on which the homeowner's insurance is based is accurate and then calculating the coverage differences that might be involved, that is one approach. Or get a letter from the insurance company that gives their estimate of the replacement costs on which the flood insurance policy was based.

AMOUNT 2. What is the “insurable value” of a building and how is it used to determine the required amount of flood insurance?

The insurable value of the building may generally be the same as 100 percent Replacement Cost Value (RCV), which is the cost to replace the building with the same kind of material and construction without deduction for depreciation. In calculating the amount of insurance to require, the lender and borrower (either by themselves or in consultation with the flood insurance provider or other appropriate professional) may choose from a variety of approaches or methods to establish the insurable value. They may use an appraisal based on a cost-value (not market-value) approach, a construction-cost calculation, the insurable value used on a hazard insurance policy (recognizing that the insurable value for flood insurance purposes may differ from the coverage provided by the hazard insurance and that adjustments may be necessary), the replacement cost value listed on the flood insurance policy declarations page, or any other reasonable approach, so long as it can be supported.

Thanks Randy