Are you ready for Risk Rating 2.0? The National Flood Insurance Program (NFIP) is rolling out the first major update to its rating and pricing methodology in 50 years. This is a big deal because the NFIP provides about $1.3 trillion of flood insurance coverage to more than 5 million policyholders nationwide. Risk Rating 2.0 is expected to produce increasingly equitable premiums that better reflect a property’s unique flood risk. A laudable goal indeed, but how will the NFIP’s new flood insurance pricing model affect your premiums in the near future?
The Federal Emergency Management Agency, which manages the NFIP, acknowledges that while some premiums will go down, others will go up. Ultimately, it will depend on your property’s individual flood risk. However, according to FEMA, 96% of current policyholders will see either an immediate premium decrease or an increase of less than $20 per month under the new pricing model. FEMA is predicting the following changes to the NFIP’s average monthly premium under the new flood insurance pricing model.
- 23% Immediate decrease of $86 per month
- 66% $0 – $10 increase per month
- 7% $10 – $20 increase per month
- 4% $20+ per month
- 20% Immediate decrease
- 68% $0 – $10 increase per month
- 8% $10 – $20 increase per month
- 4% $20+ per month
It’s worth noting that all policyholders have been subject to NFIP premium increases every year. That’s because FEMA has a statutory obligation to charge actuarially sound flood insurance premiums. Under the current pricing model, policyholders on average see premium increases of $8 per month. However, according to FEMA, rate increases will not continue indefinitely under Risk Rating 2.0.
So, when will flood insurance premiums start to change? Due to the significance of the rating overhaul, FEMA is taking a phased approach to rolling out the new pricing model.
- Phase I. Beginning October 1, 2021, new policies will be subject to Risk Rating 2.0 and existing policyholders can start taking advantage of immediate premium decreases upon policy renewal.
- Phase II. Beginning April 1, 2022, all renewing policies will be subject to Risk Rating 2.0.
Risk Rating 2.0 will not change mandatory flood insurance requirements. Lenders will continue using Flood Insurance Rate Maps (FIRMs) to identify properties located within Special Flood Hazard Areas and determine whether flood insurance is mandatory under federal law. Those not required by law or by their lender to carry flood insurance should have it anyway. Flooding is the most common and costliest natural disaster in the United States. Flood insurance is important to everyone, everywhere because there’s no such thing as a No-Flood-Zone.
Please contact us to discuss how the NFIP’s Risk Rating 2.0 may affect your personal and commercial flood insurance premiums.