Important Information on Flood Insurance

Please see the important Flood Insurance Update below regarding the new Rating Methodology that FEMA is implementing effective October 1, 2021.
Information provided by Jeff Halseth at Correll Insurance Group of Hilton Head

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,

	Jeff Halseth, CISR Elite Personal Lines Senior Account Executive
	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