Do you know about the new flood risk ratings and how they impact flood insurance? Naples Real Estate

Effective October 1st, there are new changes being implemented that affect flood insurance guidelines and costs. Are you familiar with the high-points of these changes? Matt Nance from Responsive Insurance has provided some a nice, high-level summary to give important insights on this change that is just around the corner.

Changes to Flood Insurance

FEMA is rolling out flood risk rating 2.0. The general concept is that more advanced rating techniques and technology will be combined with updated rating analytics to predict flooding exposure more accurately and thus establish premiums.

Rating 2.0 goes live for new business effective 10/01/2021.

Some key components:

1. Elevation certificates will no longer be required for flood insurance. FEMA will use their data and technology to establish a rating floor. Elevation certificates MAY still be helpful, however, and data from an available elevation certificate can be used to determine which rating data source produces the most favorable rate.
2. Replacement cost of the home will now play a part in the premium determination. From what I’ve gathered, the logic is that although two homes may be at the same elevation, distance to coast, flooding exposure, a home with a $2,000,000 replacement value will have a higher cost for finishes and repairs from 1 foot of water in the home than a home with a $250,000 replacement value.
3. There will be no more “preferred risk zone” for rating purposes. Currently an X zone, for example, is considered preferred risk and the premium is consistent whether an X zone property is located 1 mile from the Gulf of Mexico or 10 miles inland. Going forward with rating 2.0, the distance to coast and other more granular level flooding exposure will be factored into the premium.
4. Some premiums will go up and some will go down with the new rating methodology. My early assessment (and we are in the very beginning stages of seeing the updated rates) is that our clients with homes nearer the water will likely see some increase to their flood insurance if currently in preferred risk zones. There is an 18% glide path maximum renewal increase cap applied related to the flood rating risk 2.0 update.
5. It’s important to keep in mind that for flood policies through the National Flood Insurance Program (currently the majority of flood coverage), the  premiums are set by FEMA and, in general, as opposed to other types of insurance, the premium is consistent for NFIP flood coverage, regardless of the servicing company.
6. Private flood has been gaining traction is recent years due to broader coverage offerings and higher building coverage limits – as two substantial differences. I suspect that trend will continue and may even accelerate as rating 2.0 rolls out.
7. It appears that under rating 2.0, the benefit of signing over a flood policy to a new owner could play a very important role in regard to mitigating impact of new rates. If you are selling your home or buying a home from someone that had previously purchased flood insurance, this possibility should at least be explored.

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