In the implementation of Risk Rating 2.0 (RR 2.0), FEMA has applied its administrative authority to update the pricing methodology for the National Flood Insurance Program (NFIP) – 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.
What percentage of homes will see increases under RR 2.0?
According to FEMA’s national rate analysis, 77 percent of policyholders’ premiums across the country will increase with the implementation of RR 2.0. Some states, like Florida, Louisiana, and Texas, will see 80 percent of policies, or more, increase. According to a Congressional Research Service report, 50 percent of properties will reach their full risk rating in 5 years, and in 10 years, 90 percent of properties will reach their full risk rating. With annual updates to rating factor inputs planned by FEMA, premiums may change annually. New policies will immediately be charged their full risk premium; homebuyers are encouraged to assume an existing policy on a property to maintain an 18 percent glide path to full risk rate.
My home and my neighbor’s home are the same distance to a water source? Why is my premium higher now?
“Geographic Factors” include distance to river, drainage area, distance to lake, structural relative elevation, levee quality, and more. Even with two adjacent properties having similar distances to flooding sources, and similar geographic factors in all, there are many other variables, including replacement cost, elevation, and type of construction, that affect premium calculation. For example, more flood damage happens to wood structures compared to masonry structures, so there will be lower claim payments for masonry properties, and masonry has a lower value as a rating factor.
Why would a two-story home have a lower premium than a single-story home?
“Floors of Interest” is another rating factor – one of about a dozen “Property and Contract Factors” – considered by RR 2.0. According to FEMA, a homeowner would have more loss exposure in a single-story home. In a two-story home, contents are spread over two floors. In a one-story home, all of the contents are located on one floor, increasing risk of damage or loss.
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 RR 2.0. While not an official cap set by law, this is the maximum amount any single-family home policyholder will be charged under the new pricing methodology, according to FEMA. This maximum will be reviewed annually and may change in future years.
What does “all policies formerly eligible for Grandfathering will transition to their new full risk rates,” per FEMA, mean?
Under the legacy rating system, Grandfathering was available to policyholders when a map change resulted in either a rating zone or base flood elevation change. Now, all existing policies formerly eligible for Grandfathering will transition to their new full risk premium gradually, within the 18 percent annual cap (for primary residences) imposed by Congress.
If I am buying a home that already has an existing NFIP policy in place, can I assume that policy when I buy the home?
Yes, under Risk Rating 2.0, a home buyer can still take over the non-lapsed policy of the existing homeowner. This is advisable, as a new policy will immediately be charged their full risk premium. Homebuyers are encouraged to assume an existing policy on a property to maintain an 18 percent glidepath to full risk rate. For non-primary homes and commercial properties, the glidepath is 25 percent. If a policy lapses, it cannot be reopened or assigned to a new homeowner.
Are elevation certificates (ECs) required to purchase insurance? If not, what will be used to determine elevation?
ECs are no longer required to purchase coverage. Instead, FEMA will use modeling tools to determine the first-floor height of a building. To ensure accuracy, policyholders may still obtain an EC, which provides more refined elevation information, and then submit the EC to their agent to determine if it will benefit their rate. ECs can also inform mitigation actions that lower flood risk, and ECs will continue to be used for floodplain management building requirements and Community Rating System compliance. Under RR 2.0, there multiple examples of EC submission resulting in lower premiums.
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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.