Home / Daily Dose / A Breakdown of FEMA’s New Flood Insurance Rating Procedures
Print This Post Print This Post

A Breakdown of FEMA’s New Flood Insurance Rating Procedures

The Federal Emergency Management Agency (FEMA) is responsible for pinpointing high-risk zones where property owners with federally backed mortgages must purchase flood insurance. The problem is, as reported last summer, FEMA's maps of areas required to hold flood insurance have historically proved unreliable.

Now the agency is rallying to more effectively assess homeowners' risks. FEMA's National Flood Insurance Program (NFIP) recently rolled out new flood insurance rating procedures, set to go into effect in October and meant to "equitably distribute the cost of insurance for potential flood damage based on the risk a property faces," according to a report from LendingTree and Value Penguin's data writer Andrew Hurst.

Under new rules released last week, hundreds of thousands of Americans in coastal areas and other flood zones will pay much more to insure their homes.

According to Hurst, before Risk Rating 2.0, the agency primarily evaluated flood risk by using flood zone maps, which communicate the likelihood of an area being inundated by a 100-year flood event. On paper, this translates to a 26% risk of flood damage during the lifetime of a conventional 30-year mortgage," he noted. "By moving away from a reliance on flood zone mapping to show a community's flood risk, FEMA can illustrate the unique risk a property faces. Risk Rating 2.0 models a property's risk through a variety of considerations, including probable inland flooding, historical storm surges, cost to rebuild the property, historical losses, elevation, and natural surroundings and barriers."

Hurst writes, "the cost of flood insurance will increase for more than 3.8 million policies, though just 4% of all policies will see the highest increases after FEMA’s new methodology is implemented."

Dubbed "Risk Rating 2.0," FEMA's updated system ups the cost of flood insurance for 3,846,702 homeowners. However, only 192,836 of these policyholders, or 4%, will experience the upper-tier price surge. That said, 1.2 million or 23% of flood insurance policies, will see immediate cost reductions.

The states wherein residents will be most impacted include Hawaii (87% or property owners will see increased premiums), Texas (86%), Mississippi (84%), West Virginia (83%), Florida (80%), and Louisiana (80%). More than 10,000 homeowners each in Florida, Texas, Louisiana, New Jersey, and New York will face the highest price increases.

In Alaska, more than eight in 10 policies will increase. But at least half of the policies in the District of Columbia, Maryland, Michigan, and Utah will have lower rates as a result of 2.0.

Here's what else Hurst had to say about it:

"FEMA's rate changes promise to set right the problem of policyholders paying rates that don't reflect the true risk they face, but rate increases will be moderate," he notes. "Despite the fact that many homeowners will need to pay more for flood insurance after Risk Rating 2.0 goes into effect, existing limits on annual rate increases will still be in effect. This means that most homes won't experience year-over-year price hikes that are more than 18%."

He added that federally backed flood insurance policies come with a 30-day waiting period before taking effect.

"Between the time you purchase a policy and the date when that policy becomes effective, you effectively have no coverage for flood damage. You can consider private flood insurance, which can be cheaper, allows for more customization, and has a shorter waiting period (10-14 days).”

The full assessment can be read at valuepenguin.com.

Want to learn more about navigating disaster? 

Five Star’s Disaster Preparedness 2021 Virtual Experience will be held Wednesday, July 14. Not another webinar or Zoom call, Disaster Preparedness 2021 is a business immersion experience in a full-scale virtual conference environment, complete with an expo hall, breakout sessions, and interactive networking opportunities. This year's agenda features six educational panels covering topics regarding the COVID-19 pandemic, technology, regulatory insights, extreme weather, risk mitigation, and more. Click here for more information on Five Star’s Disaster Preparedness 2021 Virtual Experience.

About Author: Christina Hughes Babb

Christina Hughes Babb is a reporter for DS News and MReport. A graduate of Southern Methodist University, she has been a reporter, editor, and publisher in the Dallas area for more than 15 years. During her 10 years at Advocate Media and Dallas Magazine, she published thousands of articles covering local politics, real estate, development, crime, the arts, entertainment, and human interest, among other topics. She has won two national Mayborn School of Journalism Ten Spurs awards for nonfiction, and has penned pieces for Texas Monthly, Salon.com, Dallas Observer, Edible, and the Dallas Morning News, among others. Contact Christina at christina.hughesbabb@thefivestar.com.

Check Also

Wells Fargo Names New Chief Revenue Officer

Wells Fargo announced today that Derek Flowers has been appointed the company’s Chief Risk Officer, effective immediately. Flowers ...

Your Daily Dose of DS News

Get the news you need, when you need it. Subscribe to the Daily Dose of DS News to receive each day’s most important default servicing news and market information, absolutely free of charge.