Updates to Flood Rating
The Federal Emergency Management Agency (FEMA) has made some recent updates to flood rating under their new program, “Risk Rating 2.0: Equity in Action”.
- This new rating program went into effect 10/1/21 for new business policies.
- Renewal policies between 10/1/21 and 4/1/22 may choose either the old rating method or the new rating method, whichever rate is most competitive.
- All policies that renew after 4/1/22 will be subject to the new rating method.
It’s a good time to review what’s changing and what’s staying the same for National Flood Insurance Program (NFIP) policies. Please see my previous post on Flood Insurance if you need a brief overview on NFIP Polices, coverages, and limits.
Let’s dive in to some of the differences:
What’s Changing:
New Pricing Methodology
- Flood Zones and Base Flood Elevation
- NO LONGER USED for rating purposes
- Additional data sources used to better quantify the ‘true risk’ to a structure
- Rates now calculated by using an automated algorithm
- Includes additional datasets sourced by the Federal Government
- Building Replacement Cost
- New rating element for single-family residential homes & other residential building types
- Broader range of flood frequencies
- Considers flooding sources other than just what’s listed on the Flood Insurance Rate Map
- i.e. – Urban flooding and Catastrophe modeling
- Other Rating Variables
- Including: First floor height, ground elevation, building occupancy, construction type, foundation type, prior claims, etc.
Grandfathering
- Previously, you could grandfather either your Flood Zone or Base-Flood Elevation
- Both are no longer used for rating
- You will experience either incremental increases or decreases until you reach your Property’s “true risk rate”.
What’s Staying The Same:
Mandatory Purchase Requirement
- Still applies for properties with a federally backed mortgage located in Special Flood Hazard Areas (High-Risk Areas)
- Requires property owners to purchase and maintain adequate flood insurance
- Required for Flood Zones A, AE, A1-30, AH, AO, AR, A99, V, VE, V1-30
Coverage Limits
- The max available will still be $250,000 for building / $100,000 for personal contents
Statutory caps on individual annual rate increases
- No more than 18% per year
Assignment of a policy to a new property owner
- Policies can still be assigned to new property owner
- Provides a new option to reference the old owner’s policy on a new business quote
- Allows the new owner to keep the previous owner’s annual ‘glide path’ towards the property’s “true risk rate”.
NOTE: NFIP rates do not change regardless of which carrier you use.
Additional Options
Private Flood
As properties begin on a gradual path of a premium increase/decrease towards their true risk rate, we’ll begin to see opportunities where private flood markets can become a more competitive option for some properties. With access to multiple carriers, we are able to provide a broad range of options outside of NFIP policies.
High-Net Worth Carriers
Many of our High-Net Worth carriers offer varying solutions to fit your needs. Whether you want flood coverage for the full value of your home and contents, or just something to supplement and broaden the limited NFIP coverage offering, we can work together to put the right solution in place for you.
Bottom Line
40% of flood claims nationwide come from Low-Risk areas. Just because it’s not required doesn’t mean it won’t happen.
This is the first update to FEMA’s rating in over 50 years. As we transition into the new program, there will be a lot of confusion surrounding flood rates and renewals over the next 6 months or so.
Our goal is to provide transparency around all available options to you and to make things as simple as possible so you can be sure you make the right decision.
Click below to schedule some time for a complimentary consultation.
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