On October 1st, FEMA released their new methodology for pricing flood insurance premiums for The National Flood Insurance Program (NFIP) called Risk Rating 2.0. You might be thinking, great, but what does that mean for me? Well you're in luck, we have answered the top 3 questions about Risk Rating 2.0.
1. Why the change?
It has been over 50 years since FEMA has significantly updated their pricing method for flood insurance. A lot has changed in 50 years, not only the climate but also technology that can provide more accurate information about flood risk. Instead of just looking at a general flood zone and assigning a premium, they are now looking at the property's distance from a flood source, flood frequency and how much the building would cost to rebuild. This should not only provide a clearer picture of the flood risk of a property but also set fairer rates.
2. How Will this Affect My Insurance Premium?
With FEMA's old methodology, policyholders with lower-valued homes were paying more than their share of the risk while policyholders with higher-valued homes were paying less than their share of the risk. Since Risk Rating 2.0 now considers the cost to rebuild, the new premiums will start to even out the previous inequity. According to estimates by FEMA, 96% of current policyholders will see their premiums either immediately drop or increase by no more than $20 per month. Premiums for new policies went into effect on Oct. 1, 2021 and all policies renewing on or after April 1, 2022 will be subject to the Risk Rating 2.0 rating methodology.
3. Do I Get to Keep My Grandfathered Rating Discount?
If you are one of the 4.4% of policies who have been grandfathered, you will no longer be eligible for grandfathering. All policies will transition to the new full-risk premium. Some premiums will increase but some will decrease or stay the same now that the premiums are based on a building's individual flood risk. If you are one of the premiums that will increase, there is a cap imposed by Congress that limits the increase to 18% annually. Decreases will apply upon first renewal on or after October 1, 2021.
Still have some questions?
Don't hesitate to reach out to your Flood Authority team at 1st Direct, we have you covered! Make sure to also have us run a free risk analysis and find the best policy for you whether it's through the NFIP or a Private carrier.
It is First Direct’s recommendation that any policy related decisions be thoroughly discussed and reviewed with a licensed insurance agent prior to changes or purchases taking effect.