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Flood Insurance Update

Starting October 10, 2021, FEMA began using a new pricing methodology for rating flood insurance called Risk Rating 2.0 – Equity in Action.

The new rating allows FEMA to equitably distribute premiums across all policyholders based on the value of their home and the unique flood risk of their individual property. FEMA now has the capability and tools to address rating disparities by incorporating more flood risk variables like flood history and frequency, multiple flood types (river overflow, storm surge, coastal erosion, heavy rainfall, etc.) and distance to a water source. It also incorporates property characteristics such as the first floor elevation, square footage, and replacement cost value. New policies with effective dates of 10/1/21 and after will be rated under the new Risk Rating 2.0 methodology. For existing policies with effective dates from 10/1/21 to 3/31/22, renewal bills will be rated via the legacy system (1.0). However, insureds will have the ability to convert to a Risk Rating 2.0 renewal if the rates are beneficial. 

An Elevation Certificate (EC) will no longer be required for rating purposes, but it can be beneficial. If an EC is provided, FEMA will compare the first floor elevation information entered from the EC to their tool and use the height that provides the best rate for the customer. There will be a question on the new application specific to flood vents. Having flood vents can provide a rate credit. The number of vents and the total square inches of openings is required.

Policies can still be assigned to a new building owner. This is very important under Risk Rating 2.0 specifically, because it allows the “glide path” to transfer to the new building owner. IT IS RECOMMEND THAT ALL BUYERS ASSUME THE SELLER’S FLOOD POLICY TO TAKE ADVANTAGE OF THE GRADUAL TRANSITION TO THE FULL RISK PREMIUM. If a new policy is written, it will be at the full risk premium immediately.

Risk Rating 2.0 is a particularly big change for our area since we just received a new Flood Insurance Rate Map last March that lowered rates for practically all homeowners. Flood polices were being transitioned at their annual renewal to the lower rates under the new Flood Map. Now with Risk Rating 2.0, rates will be higher, especially for homes built at a low elevation.

Courtesy of Jeff Halseth

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