As of October 1, 2021, new policies are subject to Risk Rating 2.0; on April 1, 2022, existing policies will be written under Risk Rating 2.0 as they come up for renewal. CSFI offers the following tips for both new and existing NFIP policyholders.
1. Renew your existing policy and maintain an active policy
By maintaining an active policy, you will stay on the Congressionally-mandated glidepath, limiting annual increases on premiums to 18% for primary residences and 25% for non-primary residences and commercial properties. Ensure that your policy is renewed prior to your expiration date (the renewal date plus a 30-day grace period), so that it does not lapse. Once a policy lapses, you cannot reopen it, and if you choose to purchase flood insurance again, you will immediately face full risk rate premiums. Furthermore, you will not be able to transfer benefits of the glidepath, if you decide to sell your property.
2. Assign your policy to a new property owner
If you decide to sell your property, and if you have an active policy, you can assign that policy to the subsequent property owner, who will then benefit from gradual ramp up to the full risk rate premium. Thus, the ability to assign a policy may affect your property value, and it may also have implications on a prospective buyer’s mortgage (for properties in high-risk flood areas, flood insurance is required to obtain government-backed mortgages). If you do not have an active policy, a purchaser of your property will immediately assume full risk rate, and likely a higher premium. Discuss the value of assigning your existing policy with your real estate agent.
1. Assume an existing policy
If you are buying a property, ask if that property has an existing NFIP policy. If the property does have an active policy, assume that policy, so that you will be on the glidepath to full risk rate, just as a current policyholder would. If the property does not have an active policy, or if a policy lapses during the transaction, you will immediately be charged a full risk rate premium – you cannot reopen a lapsed policy or be offered a glidepath. If you are buying a newly-constructed property, it is unlikely that an existing policy is available to be assumed.
New & Existing Policyholders:
1. Consider undertaking mitigation measures
FEMA has identified three mitigation measures that can reliably lead to discounts under RR2.0: elevating properties on posts, piles, or piers; elevating machinery and equipment above the first floor; and installing flood openings in a building’s enclosure. However, as each of these measures respectively affect only one of many risk factors involved in premium calculation, the exact impact on premiums from undertaking an individual measure is unclear. If your property already has any of these features, your premium will be lower than it would be otherwise.
2. Consider obtaining an Elevation Certificate (EC)
Contact your floodplain manager, ask a seller, or hire a professional to acquire or complete an EC, which certifies a property’s height in relation to base flood elevation. An EC may result in more refined elevation data than FEMA’s model-derived first floor height; hence, an EC can possibly result in favorable rate changes. As elevation is just one of many rating factors, the exact impact on premiums from obtaining an EC is unclear.
3. Check to see if your community participates in the Community Rating System (CRS) and encourage participation
CRS provides community-wide premium discounts to compliant properties in certain communities that voluntarily participate in the program. If your community participates in the program, upon reaching your full risk rate, you will receive a discount corresponding to the credit points earned by your community, which are accumulated based on activities conducted. These activities span public information, mapping and regulations, flood damage reduction, and warning and response. While activities often take many years and significant resources to undertake, discounts of 0-45% are possible through the program. Visit FEMA’s CRS webpage to learn more about the program and review your community’s participation status: https://www.fema.gov/floodplain-management/community-rating-system. If your community does not currently participate, consider reaching out to local officials to discuss this option and encourage application.
4. Review documents and resources provided by FEMA to date
Various materials with background information on RR2.0 can be accessed on FEMA’s website: https://www.fema.gov/flood-insurance/risk-rating. Downloadable technical documents provide some insight into RR2.0’s methodology, data sources, rating factors, and premium calculation. Be aware that certain details and long-term guidance, including premium increase predictions beyond year one, have not yet been released by FEMA. In response, there are ongoing Congressional efforts, and efforts from the coalition and at the jurisdictional level, to increase transparency of RR2.0. This includes pending legislation to require FEMA’s development and release of a public-facing rate calculator (Flood Insurance Pricing Transparency Act), which would provide the public with a tool to better understand premium development and the ability to more predictably reduce their premiums.
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.