2022 Insurance Pro Tip #7

On October 1, 2021, FEMA released Risk Rating 2.0 which, in essence, updated the National Insurance Flood Program (NFIP) to focus more on individual property risk vice the previous "one size fits all" approach that they have been using for decades. So this literally means that two homes located right next door to each other could see vastly different premiums when it comes to coverage if they are mapped in different flood zones by FEMA.

While everyone's property is different, Risk Rating 2.0 will now take into account building proximity to riverine, canals, streams and other bodies of water that could potentially effect a homeowner in a "flash flood" situation. In addition to this, FEMA is now taking into consideration the actual Replacement Cost Value (RCV) of a home and aligning a higher rate to more expensive homes and a lower rate to less expensive homes. This, in turn, is a more equitable approach to proportioning premiums to home value.

Mandatory placement of flood insurance is NOT going away for any and all federal mortgage backed loans and the assurance that premiums will NOT increase by more than 18% on the first year of renewal has been stated on their websites and other correspondence.

Back on October 1, 2021, any new policy issued under the NFIP was subject to the new rating system. So if you purchased a home for the first time after this date and / or bought flood insurance for the property, you shouldn't be surprised at renewal.

**On April 1, 2022, all remaining policies in force that are up for renewal are subject to the new rating system.

Homeowners in a flood zone, who purchase flood coverage through the NFIP, need to be aware of these changes and should be discussing their renewals with their agents sooner rather than later to ensure they are ready for the potential rise (or reduction) in their flood insurance rates and the financial impact it could have on their bottom line going into 2023.