The National Flood Insurance Program’s (NFIP) has a new rating methodology, Risk Rating 2.0, and FEMA says it will deliver rates that are easier to understand and better reflect a property’s unique flood risk. Rates will now be developed on a structure-by-structure basis vs the existing 100-year flood plain mapping, which has not changed since the 1970s and does not consider individual flood risk and underlying home values.
Risk Rating 2.0 will fundamentally change the way FEMA rates a property’s flood risk and prices insurance by incorporating common sense variables (e.g., more types of flood risk and distance to flooding source) into the rating methodology. The program just began implementation this past October, and homeowners are beginning to receive their new quotes using Risk Rating 2.0.
The second phase of the rollout will be all remaining policies renewing on or after April 1, 2022 will be subject to the new rating methodology. One benefit of this change according to the industry experts, is that it will be much easier to obtain a quote for flood insurance by using geo location and a few simple questions of the homeowner.
FEMA will be limiting annual premium increases—existing statutory limits on rate increases require that most rates not increase more than 18% per year. They are also maintaining features to simplify the transition to Risk Rating 2.0 by offering premium discounts to eligible policyholders. FEMA will continue to offer premium discounts for pre-FIRM subsidized and newly mapped properties. Also, policyholders will still be able to transfer their discount to a new owner by assigning their flood insurance policy when their property changes ownership.
Separate from the FEMA mapping system, many of the real estate search engines are now using a Flood Factor rating system attached to all addresses. Flood Factor is a free online tool created by the nonprofit First Street Foundation that makes it easy for Americans to find their property’s risk of flooding. The Flood Factor rating doesn’t always match up to the current FEMA mapping, for instance, a property in Ocean City could be located in an X zone/Preferred zone, not requiring mortgage mandated flood insurance, however their Flood Factor risk rating could show as a 9 out of 10.
Lauren Bunting is a Broker with Keller Williams Realty of Delmarva in Ocean City, Maryland.
