FEMA is changing the way it views flood risk and prices flood insurance. The National Flood Insurance Program’s (NFIP) 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.
The NFIP’s current rating methodology has not changed since the 1970s and does not consider individual flood risk and underlying home values. Since then, technology, access to data, and the understanding of flood risk have evolved.
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 is being implemented in the following phases:
PHASE I: New policies beginning Oct. 1, 2021, will be subject to the new rating methodology. Also beginning Oct. 1, existing policyholders eligible for renewal will be able to take advantage of immediate decreases in their premiums.
PHASE II: All remaining policies renewing on or after April 1, 2022, will be subject to the new rating methodology.
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.
Policyholders will still be able to transfer their discount to a new owner by assigning their flood insurance policy when their property changes ownership.
And, discounts to policyholders in communities who participate in the Community Rating System will continue. Communities will continue to earn National Flood Insurance Program rate discounts of 5% - 45% based on the Community Rating System classification. However, since Risk Rating 2.0 does not use flood zones to determine flood risk, the discount will be uniformly applied to all policies throughout the participating community, regardless of whether the structure is inside or outside of the Special Flood Hazard Area.
Lauren Bunting is an Associate Broker with Atlantic Shores Sotheby’s International Realty in Ocean City, Maryland.
Lauren Bunting is a Broker with Keller Williams Realty of Delmarva in Ocean City, Maryland.
