Flooded street in Florida.

FEMA’s Flood Insurance Rate Changes and how it will affect you

The Federal Emergency Management Agency (FEMA) has updated the risk rating methodology of the National Flood Insurance Program, known as NFIP. The updated risk rating, dubbed Risk Rating 2.0, utilizes a new way of calculating flood insurance rates. The updated rates will be implemented in two phases, with the first phase already in effect in 2021. 

These National Flood Insurance Program rates have been subsidised for years based on flood zone maps rather than the present risk that individual structures have. However, the newly implemented flood insurance rates would now allegedly properly represent the true cost of flooding by assessing a building’s actuarial flood risk.

Insurance premiums will now be calculated using this new rating and will consider variables such as the type of flood, flood frequency, distance from water, and property features. The cost to replace your house in the event of a flood is now a major determining factor for calculating your monthly insurance premium. 

Why is FEMA Implementing Risk Rating 2.0?

In 1968, when the NFIP was established, private flood insurance was unheard of, and floods were commonly considered uninsurable. Maps created by FEMA, detailing areas that were considered moderate to high risk of flooding, were used to calculate flood insurance rates. The system remained unchanged for a period of more than 40 years and failed to cover the actual cost of flood claims. 

Risk Rating 2.0 - National Rate Analysis.
Risk Rating 2.0 – National Rate Analysis by FEMA.

FEMA’s new technique to determine actual flood risk and insurance premiums will combine private-sector data sets, disaster models and actuarial science. FIRMs’ “flood zones” will no longer be used by FEMA, which will hopefully produce the most precise flood risk assessments to date.

Flood zones will no longer be used by FEMA to determine rates. Instead, specific property risk factors will be considered, including elevation, foundation type, distance from water, and flood frequency. Insurance rates will be calculated using the latest actuarial practices, and it will be simpler for insurers to generate quotations.

These are the roll out phases for Risk Rating 2.0

Phase I: Risk Rating 2.0 was implemented starting on October 1, 2021, and affects roughly 5 million policyholders nationwide. New flood insurance plans, as well as those due for renewal, will be subject to the updated risk rating methodology. ​​

Phase II: The new rating methodology will apply to any policies renewed on or after April 1, 2022.​​

Flood Insurance Rate Changes 

Many homeowners need flood insurance as even the top homeowner insurance plans usually exclude flood damage. Some people may be forced to choose between paying the increased rate or potentially losing all they possess in a flood. It’s not all bad news though. Federal law limits most premium increases to 18% per year. In addition, the majority of insurance rate increases are comparatively small.

Some new interactive maps created by the Association of State Floodplain Managers (ASFPM), with support from The Pew Charitable Trusts, are helping bring clarity to how Risk Rating 2.0: Equity in Action updated rate-setting methodology, will affect flood insurance rates.

The maps provide state-level and ZIP code-specific information about whether flood insurance rates for existing policyholders will decrease, increase, or stay the same, and by how much. The tool visually represents the almost 1.2 million policyholders who will see rates drop, and shows that a majority of policyholders will see minimal increases, with costs rising no more than $10 per month. The maps also show that fewer than 3% of policyholders with single-family homes will see rates rise by $20 or more per month.

According to the website, 82% of Florida homeowners, 75% of New Jersey households, and 79% of North Carolina homeowners can expect an increase in their flood insurance premium of less than $20 per month. In addition to this, 74% of homeowners in Louisiana, as well as 84% of homes in Texas, will see monthly hikes of under $10.

Some households might be lucky enough to benefit from the changes, with flood insurance rates dropping more than $100 per month. A percentage of New England, Rhode Island, Connecticut and Massachusetts homeowners can expect to save more than $100 for their monthly flood insurance plan. 

In a briefing held in April 2020 in anticipation of this announcement, FEMA staff noted that based on its calculations of NFIP insurance rates for current policy holders across the nation, FEMA expects, on average:

  • – 23% of current policyholders will see immediate premium decreases of an average of $86 per month
  • – 66% of current policyholders will see increases of $0-$10 per month
  • – 7% of current policy holders will see increases of $10-$20 per month
  • – 4% of current policy holders will see increases of $20 or more per month (reportedly primarily high value homes in high risk areas)

FEMA also stated that builders will be able to mitigate/reduce the cost of flood insurance for the homes they build within the floodplain if they follow certain building practices.

If you would like to assess your home’s flood risk, Flood Factor is a handy tool that assesses some 142 million houses in the United States.

FEMA Flood Insurance Overview

There are two kinds of flood coverages offered by FEMA, namely building and contents. Building flood insurance covers building damage up to $250,000. Contents flood insurance covers up to $100,000 in personal property, which includes your personal possessions and furniture. It is up to you whether you choose building-only insurance, a contents-only policy, or a plan that covers both.

FEMA flood insurance covers damage caused directly by a flood. A flood, according to the NFIP, is an overabundance of water on usually dry ground, impacting two or more acres of land or two or more properties. FEMA flood insurance does not cover water damage caused by issues such as sewage backup or a leaky swimming pool.

This Twitter hashtag will give you the latest opinions and suggestions regarding Risk Rating 2.0: https://twitter.com/search?q=%23riskrating&src=typed_query&f=live

How to Get Affordable Flood Insurance 

If you fall within the percentage of households that will be paying more for your flood insurance as a result of FEMA’s Risk Rating 2.0, you might be wondering if there is anything that you can do to get a better rate. Luckily, there are a few things that you can look into that could potentially lower your premium. Let’s have a look at a few factors according to Floodsmart that can be addressed. 

Pick a Higher Deductible

An insurance deductible is the amount you must pay before coverage begins. The greater your deductible, the cheaper your flood insurance. According to FEMA, raising your deductible to $10,000 may cut your yearly rate by up to 40%. 

Minimize Potential Flood Damage

Reducing potential flood damage means paying less for flood insurance. FEMA’s suggestions are to physically raise electrical panels, water heaters, HVAC systems, and other utilities further off the ground. In Fort Lauderdale, even though I’m not waterfront, I have to pay flood insurance because of my location. For almost a year, I paid a higher amount per month, until I found that I could hire a surveyor that would take pictures and do measures of my house elevation (almost 5 feet high) and submitted that to

Consider construction repairs

FEMA further suggests that flood holes should be built on at least two outside walls. Homes with basements can expect to spend 15%-20% extra for flood insurance. Your best bet is to fill your basement to avoid the extra cost. Lastly, if you reside in a high-risk flood zone, you should consider elevating your house. In doing so you might be eligible for an elevation certificate which may help you save money. 

My Personal experience with lowering my flood insurance rates

When purchasing a house in 2017 in Fort Lauderdale that sits on a Flood Zone, I was forced to carry Flood Insurance so that my bank could accept my mortgage. After paying a real high rate every month that went directly to my escrow and was yearly paid my bank, I found out with my neighbor that my rate was really expensive. They were waterfront and I wasn’t and still they were paying less than I was in flood insurance.

I was recommended by them to get in touch with an inspection company that could produce an Elevation Certificate that would be submitted to my flood insurance company by my agent. After a mere 30 minutes inspection, they prepared a certificate that essentially provided my house location, area and elevation, specially of the crawlspace, and the floor but also where all my electric panels were.

See my air conditioning unit is elevated by the roof and the top of my bottom floor, including basement, crawlspace and enclosure floor was 3.9 feet high. After waiting about two months for the chance to be made at FEMA, my rates dropped about 50% (yes!) per year.

Elevation Certificate: info that gets submitted to your insurance agency.
Elevation Certificate: info that gets submitted to your insurance agency.

So how do I get flood insurance if I become required to have it?

And finally, if you are now required to carry flood insurance, you just need to contact your insurance agency. Or if you need a specialized agent, find many here: https://www.floodsmart.gov/flood-insurance-provider

Frequently Asked Questions about Risk Rating 2.0

Why is the NFIP doing this now?

FEMA has a statutory obligation to charge actuarially sound premiums and inform policyholders of their flood risk. With access to the latest industry technology and NFIP mapping data, policyholders will be able to better understand how their flood risk is reflected in the cost of their insurance. Without action, existing inequities would continue — widening the gap between rate payments and claims payouts and making it harder to meet the needs of our customers. As flooding events become more frequent and severe, Risk Rating 2.0 will allow FEMA to transform the NFIP into a financially stable program that is accountable to taxpayers, more accurately reflects flood risk to both policyholders and non-policyholders, and helps disaster survivors recover faster after floods.

When will Risk Rating 2.0 go into effect?

FEMA is conscious of the far-reaching economic impacts the pandemic has had on the nation and existing policyholders and is taking a phased approach to rolling out the new rates.
▪  In Phase I: New policies beginning Oct. 1, 2021 will be subject to the Risk Rating 2.0 rating methodology. Also beginning Oct. 1, existing policyholders eligible for renewal will be able to take advantage of immediate decreases in their premiums.
▪  In Phase II: All policies renewing on or after April 1, 2022 will be subject to the Risk Rating 2.0 rating methodology.

How will the new rating methodology impact the affordability of a policy?

FEMA recognizes and shares concerns about flood insurance affordability. Currently, FEMA does not have the statutory authority to consider affordability in setting rates but will ensure the transition to new rates under Risk Rating 2.0 complies with all statutory rate increases in place by Congress. To help address the issue, in April 2018 FEMA delivered an Affordability Framework to Congress to help policymakers consider how to provide targeted assistance to existing and potential policyholders. FEMA will continue to work with Congress to examine flood insurance affordability options.

How will premium increases or decreases impact policyholders?

Current policyholders who will face premium decreases under Risk Rating 2.0 will transition to the lower rate immediately at the first renewal of their policy. Any premium increases will transition gradually and within the existing statutory limits until the full-risk rate for the property is reached.

Max Francisco