They have provided documentation for hazard insurance based on $25k ACV, but for flood insurance they only provided based on $2,500 ACV. So they are using two different values for the same structure for hazard insurance as compared to flood insurance. When asked if it was a typo they said, no, using the $25,000 value made flood insurance too expensive and the building has flooded several times so I don't want to pay that much.
IMHO tell them to take the loan to another lender and file a SAR on both the applicant and insurance agent for fraud.
The opinions expressed are mine and they are not to be taken as legal advice.