Let’s talk flood insurance. Flooding can cause severe damage to your home and possessions. If you’re not carrying flood insurance, the cost to repair or rebuild your home and replace all your possessions will fall to you. Although flood insurance can be complicated, it is a must-have coverage to fully protect your home, especially if you are in a high-risk, (or even medium risk) flood zone.
Thinking about buying flood insurance but not sure where to begin? You could turn to one of the many flood insurance companies selling policies from the National Flood Insurance Program. However, private flood insurance, from providers unaffiliated with the NFIP, might be a better option, especially with flood insurance premium rate increases. Now is a great time to speak with an agent to find out the best flood insurance for your home, increased premium updates and how they will affect your policy.
Private Flood Insurance vs. NFIP
Private flood insurance is offered by insurance carriers who are not backed by the federal government. These private insurance carriers are companies like Lloyds of London and other excess non admitted carriers. They can offer better rates on many properties due to their underwriting guidelines and ability to rate homes on an individual basis and not on a community rating. In most cases, an elevation certificate is not needed.
Flood insurance written through the NFIP and policies written through the Write Your Own (WYO) Program are backed by the federal government (FEMA). They have certain guidelines and restrictions that they must follow. They pay insurance carriers a commission to service and sell the policies to the public. In the event of a loss, the payout is going to come from the government. Most banks have started accepting private flood insurance for new purchases and refinances however, some government–backed loans may still require a policy written through the NFIP.
Rate Changes and the NFIP’s Risk Rating 2.0 Method
Flood Insurance Premiums will soon be increasing. Like last year, the NFIP is implementing rate changes effective April 1st. FEMA is updating the NFIP risk rating methodology by implementing a new pricing model called Risk Rating 2.0. The new method will be easier to understand and will be a more accurate representation of a property’s flood risk.
According to FEMA, Risk Rating 2.0 enables FEMA to set rates that are fairer and ensures rate increases and decreases are both equitable. Currently, policyholders with lower-valued homes are paying more than their share of the risk while policyholders with higher-valued homes are paying less than their share of the risk. Because Risk Rating 2.0 considers rebuilding costs, FEMA can equitably distribute premiums across all policyholders based on home value and a property’s unique flood risk.
Every year at renewal, policyholders can expect to see an average premium increase of $8 per month.
Unfortunately, as a result of the new pricing model, some people may see large premium insurance increases. Effective April 1st, there will be rate changes through the NFIP that will impact homeowners. The most significant rate changes will affect secondary homes. Any non-primary homes may see an increase of 25% on their flood policies.
Will My Policy Be Affected?
Any homes that were built before a Flood Insurance Rate Map (FIRM) was put into place in a community will see the largest rate increase. However, it is important to note that other NFIP policies can also change. The new NFIP rates will affect both new policies and policies up for renewal.
Properties that flood repeatedly (SRL properties) and substantially damaged properties or substantially improved properties can also expect a significant increase.
By law, Pre-FIRM subsidized properties will increase 25% every year until premiums reach market rates. You can read more about the Risk Rating 2.0 at fema.gov.
At one point, the NFIP was the only flood insurance choice for many homeowners but it is now much easier to switch flood insurance policies.
There are expected to be more flood insurance premium increases on NFIP flood premiums come January 2022. Now is the time to check your policy and shop around for rates with lower premiums or increased coverage on your flood policy. Call Justin Kraus today for a quote and make sure you have a policy in place that gives you protection at the best rate.
