The National Flood Insurance Program (NFIP) has adopted a new risk rating methodology, which has impacted millions of policyholders around the country.
The National Flood Insurance Program’s new risk rating model is called Risk Rating 2.0. It has been in full effect since April 1, 2023. All policies renewing on or after this date are subject to the new pricing system. The model leverages new capabilities, tools, and risk variables to create a more accurate pricing system.
According to the National Association of Realtors, the new risk rating system rates properties individually instead of by flood zone. This results in more accurate pricing. For some property owners, rates will increase – but for others, rates will actually decrease.
If your NFIP flood insurance policy is renewing soon, the new risk rating system may result in a higher or lower premium than before.
FEMA says 23% of all policyholders will see a decrease with the new system, with an average decrease of $86 per month. Although more people will see an increase, 66% will see only modest increases of $0 to $10 per month. Only 7% will see increases of $10 to $20 per month, and the remaining 4% will see increases of more than $20 per month.
However, the rate changes will impact some states more than others. In Florida, 1,727,900 property owners have an NFIP policy. Of these policyholders, 20% will see a premium decrease, 68% will see an increase of $0 to $10 per month, 8% will see an increase of $10 to $20 per month, and 4% will see an increase of more than $20 per month.
You may be able to reduce your flood insurance costs through individual mitigation efforts and community programs that lower your flood risk. According to FEMA, policyholders can receive a mitigation discount if their building’s enclosure or crawlspace has proper flood openings or engineered openings. Discounts are always available if you elevate certain types of covered machinery, equipment, and appliances to at least the elevation of the floor above the building’s first floor.
FEMA says communities can earn rate discounts of 5% to 45% by participating in the Community Rating System Classification. The discount applies to all the policies in the participating community. In Florida, 259 communities were participating in the program as of October 1, 2020.
Policyholders can also apply for Hazard Mitigation Assistance grants, which are available for both pre-disaster and post-disaster mitigation projects. Such projects could involve installing flood openings or elevating structures, machinery, and equipment.
Although flood insurance can be expensive, not having it may be even more costly. According to FEMA, just one inch of water can cause $25,000 worth of damage in a home. Many homeowners erroneously believe that their homeowners insurance provides coverage, but homeowners insurance excludes losses related to flooding. To protect your home and belongings, you need flood insurance.
If you have a mortgage and live in a high-risk area, your lender may require you to carry flood insurance in addition to homeowners insurance. Even if you are not required to have flood insurance, you may want to protect your home by purchasing coverage.
Low risk doesn’t mean no risk. According to FEMA, 25% of all flood insurance claims come from areas with a low to moderate flood risk. If you live in such an area, you may qualify for lower rates, making it more affordable to secure protection.
The National Flood Insurance Program (offered by the federal government) is not your only option for flood insurance. Some private companies also offer flood insurance policies.
If you cannot secure the coverage you need through the NFIP, you might like to consider shopping around for a private policy. For example, the NFIP’s limits only go as high as $250,000 for a family home and $100,000 for its contents. If these limits are too low to cover the value of your home and belongings, we may be able to help you secure higher limits elsewhere.
Do you need support understanding your flood insurance coverage? We can help you examine your coverage needs and explore your options. Contact us.
We also partner with Canadian brokers to provide cross-border insurance solutions for clients with automobiles, homes and watercraft in the U.S. Barbara.Owens@centuryra.com at Century Programs to learn more.
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