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FLOOD INSURANCE UPDATE
Starting on all business with an Effective Date of 10/1/21 or after, FEMA
began using a new pricing methodology for rating flood insurance. It is
called Risk Rating 2.0 - Equity in Action. Risk Rating 2.0
transforms the pricing methodology that has not been updated in 50 years
and completely changes the way flood insurance is rated.
In the Legacy 1.0 rating method that has been used for many years, rates were
based on a property’s lowest floor as compared to the Base Flood Elevation
level within a Zone on a Flood Insurance Rate Map. In Risk Rating 2.0, the
flood zone does not drive the rating and the Base Flood Elevation level is no
longer a rating variable.
Instead, the new rating methodology allows FEMA to equitably distribute
premiums across all policyholders based on the value of their home and the
unique flood risk of their individual property. Currently, many policyholders
with lower-value homes are paying more than they should and policyholders
with higher-value homes are paying less than they should.
With Risk Rating 2.0, FEMA now has the capability and tools to address rating
disparities by incorporating more flood risk variables like flood history and
frequency, multiple flood types (river overflow, storm surge, coastal
erosion, heavy rainfall, etc.) and distance to a water source. It also
incorporates property characteristics such as the first floor elevation,
square footage, and replacement cost value.
New policies with effective dates of 10/1/21 and after will be rated under
the new Risk Rating 2.0 methodology. For existing policies with effective
dates from 10/1/21 to 3/31/22, renewal bills will be rated via the legacy
system (1.0). However, insureds will have the ability to convert to a Risk
Rating 2.0 renewal if the rates are beneficial. So far, most of the Risk
Rating 2.0 quotes we have seen are higher.
Effective 4/1/22, all policies will be rated under Risk Rating 2.0. Policies that have a
higher premium as calculated by Risk Rating 2.0 will transition
to their new full-risk premium. They will be placed on a “glide path” until
they reach their full premium amount. Annual increases will be gradual and
within the 18% annual cap imposed by Congress.
An Elevation Certificate (EC) will no longer be required for rating purposes,
but it can be beneficial. If an EC is provided, FEMA will compare the first
floor elevation information entered from the EC to their tool and use the
height that provides the best rate for the customer. We strongly recommend
that all insureds have a current elevation certificate.
There will be a question on the new application specific to flood vents.
Having flood vents can provide a rate credit. The number of vents and the
total square inches of openings is required. Thus, we recommend having a
current elevation certificate that provides flood venting information if the
home is elevated.
Policies can still be assigned to a new building owner. This is very
important under Risk Rating 2.0 specifically, because it allows the “glide
path” to transfer to the new building owner. WE RECOMMEND THAT ALL BUYERS
ASSUME THE SELLER’S FLOOD POLICY TO TAKE ADVANTAGE OF THE GRADUAL TRANSITION
TO THE FULL RISK PREMIUM. If a new policy is written, it will be at
the full risk premium immediately.
Risk Rating 2.0 is a particularly big change for our area since we just
received a new Flood Insurance Rate Map last March that lowered rates for
practically all homeowners. Flood polices were being transitioned at their
annual renewal to the lower rates under the new Flood Map. Now with Risk
Rating 2.0, rates will be higher, especially for homes built at a low
elevation.
Regards,
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Jeff Halseth, CISR Elite
Personal Lines Senior Account Executive
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Correll Insurance Group of Hilton Head
15 Bow Circle, Suite 101
Hilton Head Island, SC 29928
Mailing: PO Box 6869, HHI, SC 29938
t: 1-888-668-8082 ext 23272
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