Flooding & Fema Changes

Flooding Rules by Fema 2021

Flood Insurance Changes
Risk Rating 2.0 – effective October 1, 2021
Prepared by Chris Heidrick, CPCU, ANFI, CFP®

 

Summary:
FEMA is completely changing the way it rates flood insurance policies. The National Flood Insurance Program (NFIP) was created over 50 years ago. This is the first significant update to the way the NFIP calculates rates in the program’s history.

 

The original rating methodology relied on static Flood Insurance Rate Maps (FIRM) to rate policies. As a result of the rudimentary rating structure, cross-subsidies developed within the program. Most notably, inland properties were subsidizing coastal properties and lower value homes were subsidizing higher value homes.

 

Risk Rating 2.0 is designed to determine a specific risk-based premium for each individual structure, using probabilistic modeling as opposed to FIRMs and introduce additional rating variables such as distance to flooding source, risk of flood driven by rain and overflow from creeks and rivers and a structure’s replacement cost.

 

Owners of properties insured by an NFIP policy on October 1, 2021 are protected by statutory limits on premium increases. In most cases those policies will increase by 18% annually until the Full Risk Premium is reached. A buyer of an insured home will pick up on the seller’s “glidepath” when the home is sold. New policies written on homes not insured by the NFIP on October 1, 2021 will generally be more expensive…possibly much more expensive…though policies issued by private flood insurers may be an attractive alternative to the NFIP.

 

For additional information regarding Risk Rating 2.0, please visit: Risk Rating 2.0: Equity in Action | FEMA.gov

This document was created to provide a broad overview of the changes from Risk Rating 1.0 (RR 1.0) to Risk Rating 2.0 (RR 2.0). It is not to be used as specific guidance for any specific building or property. The only way to determine the cost of flood insurance for a given property under Risk Rating 2.0 is to have a licensed insurance agent prepare a quote.

 

Key Rating Differences between RR 1.0 and RR 2.0
Prepared by Chris Heidrick, CPCU, ANFI, CFP®

 

Risk Rating 1.0 Risk Rating 2.0
Flood Maps/Flood Zones Premiums based on Flood Maps, causing big differences in premium depending on “flood zone” Flood Maps and Flood Zones no longer used for rating but are used to determine if a lender will require flood insurance.
Elevation Certificates Required to obtain a quote for buildings constructed under a Flood Insurance Rate Map within the Special Flood Hazard Area No longer required to obtain a quote. But may result in a lower premium for properties inside or outside the Special Flood Hazard Area.
Grandfathering/ ”Glidepath” Policies may be rated according to an obsolete rate map resulting in artificially lower premiums, in some cases. Grandfathering is eliminated. But,policies in-force on 10/1/21 enjoy a “Glidepath” from current premiums to Full Risk Premium.
Renewal Premiums Most policies increased around 5% to 10% each year. Some increased 25% each year. Policies on the “Glidepath” can be expected to increase 18% each year until Full Risk Premium is reached.
Policy Assignment Seller of a property can “Assign” their NFIP policy to a buyer, under some circumstances. Buyer’s NFIP premium picks up where the seller is on the “Glidepath” and will increase 18% each year until Full Risk Premium is reached.

 

This document was created to provide a broad overview of the changes from Risk Rating 1.0 (RR 1.0) to Risk Rating 2.0 (RR 2.0). It is not to be used as specific guidance for any specific building or property. The only way to determine the cost of flood insurance for a given property under Risk Rating 2.0 is to have a licensed insurance agent prepare a quote.

 

General Premium Differences – Sanibel and Captiva Islands
Prepared by Chris Heidrick, CPCU, ANFI, CFP®

 

Risk Rating 1.0 Risk Rating 2.0
Pre-FIRM (buildings constructed before a communities first Flood Insurance Rate Maps Primary Occupancy – $2,000 to $3,000 per year. Non-Primary Occupancy – $8,000 to $9,000 per year. Generally, $4,000 to $5,000 per year, regardless of occupancy.
Post-FIRM slab foundations Generally, between $1,000 and $2,000 per year. Generally, between $9,000 and $10,000 per year.
Post-FIRM piling foundations Generally, between $500 and $2,000 per year in AE Flood zone (most homes) and $8,000 or higher in VE Flood zone (generally along the Gulf). Generally, between $2,000 and $12,000 per year. An Elevation Certificate may help. Impossible to predict when/if an EC will help.
Residential Condo Units Premium the same regardless of floor on which Unit is located. Floor on which unit is located now a rating factor. Premiums increase significantly for 1st and 2nd floor units.

 

This document was created to provide a broad overview of the changes from Risk Rating 1.0 (RR 1.0) to Risk Rating 2.0 (RR 2.0). It is not to be used as specific guidance for any specific building or property. The only way to determine the cost of flood insurance for a given property under Risk Rating 2.0 is to have a licensed insurance agent prepare a quote.