Risk Rating 2.0

In the implementation of Risk Rating 2.0 (RR 2.0), FEMA has applied their administrative authority to update the pricing methodology for the National Flood Insurance Program, the first major overhaul of rates since the 1970’s.  As of October 1, 2021, new policies are subject to RR 2.0, and on April 1, 2022, renewing policies will be written under RR 2.0.  Using new capabilities and tools, RR 2.0 incorporates more flood risk variables, including the property’s replacement cost value, distance from water, and flood frequency.

RISK RATING 2.0 FAQs

My home is in Zone X with a PRP policy.  How will my premium be affected by RR 2.0, and how will I be informed? 

Preferred Risk Policies (PRPs) – standardized lower-cost premiums for properties in lower-risk zones – are being phased out under RR 2.0.  While some RR 2.0 premiums may decrease relative to legacy rates, CSFI has seen that RR 2.0 rates for properties formerly qualifying for PRP policies generally increase.  In your renewal notice, sent approximately 45 days before expiration, you will receive notification of your new rate.  To obtain an accurate quote prior to renewal, and for details about your policy, please contact your agent directly.

Do flood zones still exist, and if so, do they still matter?

Flood zones still exist; however, the zone itself will not impact a premium.  RR 2.0 considers many new risk factors, dissimilar from the legacy rating system, where flood zones and Base Flood Elevations primarily determined rates.  However, your flood zone remains the same, unless a new flood map is adopted or the map is amended.  Flood zones are still relevant, as a mortgage lender may still use a flood zone to determine whether to require a mortgage holder to obtain flood insurance and maintain active flood insurance.  Furthermore, properties in high-risk zones with government-backed mortgages are still required to have flood insurance.

My home and my neighbor’s home are the same distance to a water source.  Why is my premium higher now?

Even if you have two properties with same distance to flooding source, there are many other variables, including replacement cost, elevation, and type of construction.  For example, more damage happens in a flood to wood than masonry – so there will be lower claim payments for masonry.

Why would a two-story home have a lower premium than a single-story home?

According to FEMA, a homeowner would have more loss exposure in a single-story home. A two-story home will have a lower premium, because in a two-story, the contents are spread over two floors. In a one-story home, all of the contents are located on one floor, which are more likely to be damaged or lost.

What will the maximum NFIP policy cost be for a homeowner?

$12,125 is the maximum premium any single-family home policyholder will receive in year one under Risk Rating 2.0. It is not an official cap, but rather the maximum amount any single-family home policyholder will pay based on the new pricing methodology.  The maximums will be reviewed annually and updated incrementally, and could change in future years.

In the FAQ of the RR 2.0 Equity in Action document, it says “all policies formerly eligible for Grandfathering will transition to their new full risk rates.” What does that mean?

Grandfathering has been available to policyholders when a map change results in either a rating zone or Base Flood Elevation change. However, since RR 2.0 will be able to provide each building’s individual flood risk, all policies formerly eligible for Grandfathering will transition to their new full-risk premium gradually and within the 18 percent annual cap imposed by Congress.

My RR 2.0 premium is lower than my current premium.  Can I renew and receive my lower rate now? 

Legacy policyholders must wait until renewal dates for the opportunity to renew policies under RR 2.0.  Agents cannot rewrite existing, active policies for policyholders to immediately take advantage of more favorable rates under RR 2.0.

I am buying a home, and I want to phase into my full-risk rate.  Can I assume the former owner’s policy?

Yes, a new owner can take over an existing NFIP policy on property, and then be on the glidepath to reach full-risk rate.  Owners of newly constructed homes, or homes that previously did not have flood insurance coverage, will have to obtain a policy under RR 2.0 as of October 1, 2021 and immediately assume the property’s full-risk rate.

I am building a new home, and I want to limit future flood insurance premiums.  What can I do to achieve discounts?

FEMA has stated that discounts will be applied to properties raised on posts, piles, or piers, relative to unraised properties.  A home with at least two proper flood openings on two exterior walls can also receive reduced rates, and larger openings can trigger larger rewards.  Also, a discount can be achieved by elevating machinery and equipment to the floor above the building’s first floor.

I’d like to take measures to mitigate my flood risk and decrease my flood insurance premium.  Is there funding for mitigation measures available through NFIP?

Through NFIP, Increased Cost of Compliance (ICC) coverage is available to properties that have been substantially or repeatedly damaged by flooding.  ICC coverage can provide up to $30,000 to help in rebuilding and a building into compliance with the elevation requirements of their local floodplain management ordinance.  Local jurisdictions may also administer residential mitigation programs, such as the Hazard Mitigation Grant Program and Flood Mitigation Assistance Program, which can be utilized to flood proof residences.  Contact your local floodplain manager for more information.

I live in a community that participates in the Community Rating System (CRS).  Will the discounts continue?

Under RR 2.0, CRS discounts will be applied to policies once they reach their full-risk rate.  Thus, while on the glidepath to a new rate, a policyholder would not receive a CRS discount.  However, a new policyholder under RR 2.0 would receive a CRS discount immediately, as the policy would be at its full-risk rate immediately.  At full-risk rate, properties in compliance with floodplain management regulations will receive discounts uniformly.

Do prior claims on my property affect my RR 2.0 premium?

Prior NFIP claims within a rolling 20-year window have the potential to affect rates, but do not automatically have an effect.  The first claim processed after RR 2.0 triggers prior NFIP claims as a rating factor, starting on the renewal date after that claim.  One claim that falls within the rolling 20-year window is written off.   Claims history is based on the property, rather than the policyholder.

Are elevation certificates going to be required to purchase insurance? If not, what will be used to determine the difference between a home’s elevation in relation to a flooding source?

Elevation Certificates (ECs) are no longer be required to purchase coverage under Risk Rating 2.0.  Instead, FEMA will use its tools to determine the first-floor height of a building.  While not required, policyholders may purchase an elevation certificate, which provides more refined elevation information about their building, and submit it to their agent to determine if it will benefit their rate.  Also, ECs can help inform mitigation actions that lower flood risk and will continue to be used for floodplain management building requirements and Community Rating System compliance.  We have seen many examples of an elevation certificate resulting in a lower premium.

ABOUT CSFI Since April 2013, GNO, Inc. has led the Coalition for Sustainable Flood Insurance (CSFI), a national coalition that has included approximately 250 organizations across 35 states, formed during the implementation of the Biggert-Waters Act.  CSFI was a driving force behind the passage of the Homeowner Flood Insurance Affordability Act (HFIAA).  Since the passage of HFIAA, our coalition has focused on advocating for a stronger policy framework for the NFIP.  CSFI is an initiative of Greater New Orleans, Inc.  For more information, please visit www.csfi.info.