Changes are coming to flood insurance. As a result, Atlanta homeowners and homebuyers need to be aware of how the Federal Emergency Management Agency (FEMA) Risk Rating 2.0 affects flood insurance rates and coverage. FEMA released several documents in early September 2021, including guidance for the upcoming transition to its new risk rating methodology. For instance, the guidance outlines how FEMA applies the new rating factors and credit options when determining insurance premiums for policies issued under the National Flood Insurance Program (NFIP).
The NFIP Flood Insurance Manual Risk Rating 2.0: Equity in Action edition is effective Oct. 1, 2021, and is now available online. It provides the insurance industry with updated guidance on NFIP underwriting policies and processes to enable effective and consistent implementation of Risk Rating 2.0. FEMA also released an Industry Transition Memorandum describing the transition from the current legacy rating plan to the new methodology.
FEMA is taking a phased approach to implementing the new rating methodology. All new policies obtained on or after Oct.1 will be priced using Risk Rating 2.0. In other words, beginning Oct. 1, policies eligible for renewal will be able to take advantage of immediate decreases in their premiums if their rates under the new methodology would be lower than renewing under the legacy pricing methodology. Phase II effective April 1, 2022, will subject all remaining policies to the Risk Rating 2.0 rating methodology.
NAHB on FEMA Risk Rating 2.0
Here is what Susan Asmus, the National Association of Home Builder’s (NAHB) Senior Vice President of Regulatory Affairs has to say about FEMA and Risk Rating 2.0.
- Risk rating is is happening – be aware of it. It is not just coastal, it is not just riverine. FEMA says flooding happens everywhere, so everyone (homeowners, homebuyers, home builders and others in the industry) need to pay attention to this.
- Certain building practices can reduce a structures risk. This can result in a credit toward reducing the rate that you pay for flood insurance. Some things to consider are elevating mechanicals, installing flood vents, putting the house on piles or piers. Rates are now structure specific versus area specific. FEMA has finally realized flood insurance and flood risk is not one size fits all.
- NAHB is working hard. NAHA is working with FEMA and Congress to get information on these changes so that we can make decisions for ourselves. Make sure you share information with those you interact with.
These changes have real impacts on buyers and homeowners. The interest among the private sector, environmental advocates and the government in this flooding and environment impacts means these things aren’t going away. This means the new home industry needs to find positive ways to participate. Look long and hard at things that make sense and figure out what we are willing to do to be part of the solution!!
What homeowner’s should know about FEMA Flood insurance
On April 1, 2022, FEMA should reveal to each property owner what their risk rating will be. The education really starts then. FEMA will issue renewal notices for Risk Rating 2.0 with the amount due. Once processed ,the declaration page will reveal the full risk rating itemized as part of the premium’s components.
Because the transition will impact policyholders at different times depending on their renewal dates, it is important to note that FEMA is maintaining the legacy Flood Insurance Manual that will be used for rating policies with effective dates before Oct. 1, 2021, and optionally, for those policies with effective dates between Oct. 1, 2021 and March 31, 2022, for which policyholders choose to renew under the legacy pricing methodology.
Additional Resources
- NAHB’s fact sheet (April 2021)
- Risk Rating 2.0: Equity in Action – Background & overview of Risk Rating 2.0 initiative (FEMA)
- Risk Rating 2.0 State Profiles – Information regarding impact of Risk Rating 2.0 at the state, county and zip code levels (FEMA)
- Equity In Action– Program fact sheet (FEMA)
- Flood Insurance Manual– Effective Date October 1, 2021 (FEMA)
- Risk Rating 2.0 is Equity in Action (FEMA)