How FEMA’s New Flood Risk Assessment System Can Affect Your Clients

This is part of a series sponsored by SWBC.

The Federal Emergency Management Agency (FEMA) is responsible for identifying areas at high risk of flooding, which are used to designate areas where homeowners with federally subsidized mortgages must obtain flood insurance.

In 2021, FEMA’s National Flood Insurance Program (NFIP) was implemented new ways when assessing flood risk for insurance underwriting purposes. Dubbed “Risk Rating 2.0,” the new system aims to accurately show the risk to property owners and allocate the cost of insurance for flood damage more efficiently.

The purpose of Risk Rating 2.0’s key principles is to make pricing more accurate and to make insurance premiums more closely related to the risk of individual assets and bring returns to the government program.

For example, under the previous plan, there were high-dollar, high-risk coastal areas where property owners were paying very low premiums on their NFIP policies because the rates were supported by low floodplain properties. FEMA’s original assessment process did not take such factors into account. RR2.0 will use data modeling methods that do so.

In the revised system, many of the old ‘grandfathered’ rules are the subsidies that NFIP was providing before RR2.0 was repealed, making private insurance more competitive.

In this blog post, we’ll discuss how FEMA’s new risk management system will affect your insurers’ needs for many flood insurance options, and give you some tips to share with them to ensure their coverage is fully covered.

How Will FEMA’s New Risk Rating 2.0 Affect My Clients’ Prices?

In a recent discussions Led by the University of Pennsylvania’s Wharton Risk Center, flood researchers analyzed how RR 2.0 would affect coverage for millions of policyholders:

“Although homes with policies in place are protected from unexpected price increases of 18% per year, the law does nothing to protect homes that do not have insurance. Due to various problems related to encouraging NFIP participation, it is unfortunate that many homes that are and flood risk.

Another factor affecting the rate of decline is that it appears to be more pronounced for low-income households. This makes sense because these families cannot afford flood insurance to begin with. The median premium for uninsured in FEMA-designated areas was found to be just $40,000, about half of the $77,000 median premium for policy holders in flood zones. Rising interest rates on uninsured homes are sure to exacerbate the equity crisis and further fuel price shocks in unaffordable areas.

One risk is that insufficient RR 2.0 prices may be unaffordable for new applicants (and those who have stopped following their rules because they could not afford them) unfortunately they are becoming a reality, as shown by the alarming decrease in the number of new NFIP policies. was created after Phase 1 of RR 2.0 started on 10/1/2021.

This has continued through 2022. The chart below shows how many new policies were created at the new rates, versus changes that benefit from the delayed protection increases until 4/1/2022. It seems reasonable to conclude from this study that the RR 2.0 rates are significantly higher than the old rates, which is preventing homeowners from taking out flood insurance.

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As you can see, new NFIP sales are down compared to pre-RR2.0, but private flood insurance is growing rapidly. One of the reasons for this is that each of the insurers is willing to take care of themselves in the event of an accident and those opinions often differ to some extent.

Other ways to improve the NFIP

As a trusted insurance agent for customers, they trust you to provide the best advice that will protect their home. For example, do they know that flooding is not covered by homeowner’s insurance? This is important, because, according to The cost of FEMAJust one inch of flood water in their home can cause over $25,000 worth of property damage.

If your clients are worried about inflation under the new FEMA plan, they may want to look into private insurance.

Here are some key features of private flood insurance that will help you understand the difference:

Advanced Access Level: Flood insurance generally provides more coverage than the NFIP’s $250,000 limit for a home and $100,000 limit for property.

Short Term: NFIP coverage usually takes 30 days to go into effect, but with some specialty insurers, coverage can take as little as a week.

Additional Flood Relief: If your client needs to move temporarily, personal insurance can provide you with temporary housing. Depending on the plan, they may also purchase properties or areas not used by the NFIP.

Hopefully, your customers won’t use flood insurance – but it’s always a good idea to make sure they have the right coverage in case of a disaster.

SWBC images flood insurance Access extends beyond the limits provided by NFIP. The program also includes financial assistance for the insured during the transition, which the NFIP does not provide.

In addition, SWBC is rapidly expanding its coverage to help sponsors find new products secret flood insurance options for their customers to be able to offer direct alternatives to NFIP.

Visit our website to learn more about our comprehensive and private insurance.

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