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    Do You Know Your Property’s Flood Risk Under FEMA’s New Rating System?

    The Federal Emergency Management Agency (FEMA) is tasked with identifying high-risk flood zones, which in turn are used to determine areas in which property owners with federally backed mortgages must obtain flood insurance. Unfortunately, following years of above-average hurricane and severe weather activity, the flood zone system traditionally used to evaluate risk has proven unreliable.

    For example, when Hurricane Harvey hit Houston in 2017, it left over 200,000 damaged homes in its wake and caused $125 billion in total damages. Of the houses and businesses affected by the storm, 80% were located outside of the 100-year flood plain. The vast majority of these property owners did not have flood insurance.

    To correct this issue, FEMA’s National Flood Insurance Program (NFIP) has introduced new procedures for rating flood risk for insurance purposes. The new process is meant to more accurately reflect risk for property owners, and distribute the cost of insurance for potential flood damage more equitably. Coined “Risk Rating 2.0,” the new methodology is set to go into effect in October 2021.

    In this blog post, we’ll discuss how these changes may impact your need for more primary flood insurance options, and give you tips for ensuring your property is adequately covered.

    How Will FEMA’s New Risk Rating 2.0 Impact My Property?

    Here are some key highlights of FEMA’s Risk Rating 2.0 from ValuePenguin:

    • Under FEMA's Risk Rating 2.0 system, immediate cost reductions will be realized for nearly 1.2 million, or 23%, of flood insurance policies.
    • Nearly 77% of existing policies across the U.S. will see some level of price increase.
    • The ratio of policies that will be more expensive after Risk Rating 2.0 varies by state. Eighty-six percent of policies in Texas will have higher prices after October, second only to Hawaii at 87%.

    According to Forbes, “The burden of higher rates for flood insurance will hit the coastal states of California, Delaware, Florida, South Carolina, and Washington the hardest. As the nation adapts to warmer waters and climate change, other states that will face bigger losses and higher premiums include Louisiana, Mississippi, and Texas.

    One positive is that flood insurance rates will be fairer. Some property owners may find that their premiums are reduced rather than increased, particularly since the largest increases would occur in coastal communities within higher socioeconomic zones where the cost of flood insurance is not a major financial consideration.”

    Risk Rating 2.0 Implementation

    According to FEMA, Risk Rating 2.0 will be implemented in two phases:

    Phase I

    New policies beginning Oct. 1, 2021, will be subject to the new rating methodology. Also beginning Oct. 1, existing policyholders eligible for renewal will be able to take advantage of immediate decreases in their premiums.

    Phase II

    All remaining policies renewing on or after April 1, 2022, will be subject to the new rating methodology.

    Beginning Aug. 1, current National Flood Insurance Program policyholders can contact their insurance company or insurance agent to learn more about how Risk Rating 2.0 may impact them.

    The Importance of Obtaining Flood Insurance for Your Property

    Did you know that flood damage is not covered by homeowners insurance? This is important, because, according to FEMA, a mere inch of floodwater in their home can result in over $25,000 in property damage.

    Here are a few highlights of private flood insurance features that may help you understand how obtaining private flood insurance may be beneficial:

    Higher Coverage: Private flood insurance typically offers a higher level of coverage than NFIP’s $250,000 limit on their home and $100,000 limit on their belongings.

    Shorter Wait Times: NFIP takes 30 days to go into effect, but with some private insurers, coverage could go into effect in less than a week.

    Additional Flood Assistance: If your client has to temporarily relocate, private insurance may provide for short-term housing. Depending on the policy, they could also potentially purchase coverage for items or areas not covered through NFIP.

    SWBC's excess flood insurance and NFIP alternatives for primary flood coverage go above and beyond the standard coverage limits. The program also covers funding for living expenses to help the insured through the transition process, which is something the NFIP does not offer. Excess coverage provides up to $5 million to rebuild a home or business, and up to $2 million in most states to replace stand-alone contents that may be valued above the NFIP limits.

    Hopefully, you won’t ever have to use your flood insurance policy—but it’s always best to ensure you’re covered in case disaster strikes.

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    Tyreo Harrison

    As Executive Vice President, Lending & Insurance Solutions, Ty Harrison leads teams of lending and insurance professionals that are dedicated to delivering value-added programs, services and technology tailored to address the needs of lenders, loan servicers, portfolio managers, mortgage brokers, insurance agents and insurance brokers.

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