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Risk Rating 2.0: Waves, ripples or premium tsunami?

By Staff | Oct 7, 2021

After years of postponement, FEMA has revamped the risk factors on which flood insurance rates are determined.

“FEMA is updating the National Flood Insurance Program’s (NFIP) risk rating methodology through the implementation of a new pricing methodology called Risk Rating 2.0.,” an explanatory summary from the agency states. “The methodology leverages industry best practices and cutting-edge technology to enable FEMA to deliver rates that are actuarily sound, equitable, easier to understand and better reflect a property’s flood risk.”

What this means financially to property owners depends on where the property is located and so its determined risk factors.

Impact also depends whether the property already has flood insurance or whether a new policy is being sought.

Some background:

Under the previous rating system, policy owners nationwide would see, on average, a premium increase of about $8 per month or about $96 per year, according to FEMA.

In low-lying, water-body-abundant Florida, it has been higher — and in Florida, it’s going to be higher yet.

Under Risk Rating 2.0, FEMA paints a positive picture that estimates that, on average nationwide — we emphasize nationwide — 23 percent of policy holders will see an immediate decrease of $86 per month in their premiums. Sixty-six percent will see an increase of up to $10 per month, 7 percent will see increases of $10-20 per month and 4% will see hikes greater than $20 per month, up to the 18% annual maximum.

FEMA has broken down its estimates by state.

In Florida, there are approximately 1,727,900 National Flood Insurance Program policy holders. There are another 5.6 million properties not insured under the program.

Of those covered, FEMA says 342,142 policy holders will see an immediate decrease; 1,178,074 will see an increase of up to $120 per year; 134,572 will see increases of $120-$240 per year; and 73,113 policy holders will see increases of more than $240 per year, up to the maximum of 18% allowed for “most.”

Here in Cape Coral, officials say we’re going to tip to the higher end of the scale. Property owners in Flood Zone A and AE fall into that final category and are looking at a premium increase of at least 18 percent.

A potential annual 18 percent hike is concerning enough but for new home buyers, there is no cap over existing premium rates — as of Oct. 1, they are starting with a fresh base subject to the new rating methodology.

That means in addition to the thousands upon thousands of homeowners looking at premium bumps, new home buyers are facing premiums much, much higher than those being paid by current policy holders — in some cases thousands more per year.

It gets worse. Phase II is next and it will affect all property owners in need of a flood insurance policy.

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

According to FEMA, their new risk rating methodology is more equitable — “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.”

City and county officials looking at that equitable redistribution acknowledge that property owners likely have lots of questions.

To that end, the city of Cape Coral has scheduled a special Town Hall meeting for Tuesday, Oct. 12, from 5:30 to 8:30 p.m. at the Cape Coral Yacht.

Cape Councilmember Gloria Tate, Lee County Commissioner Kevin Ruane and Brian Chapman, CEO of Chapman Insurance Group, and city planning team coordinator Wyatt Daltry will take part in a presentation with representatives from the offices of U.S. Sen. Marco Rubio and U.S. Rep. Byron Donalds expected to be present as well.

The Town Hall will provide information on the fiscal impacts of the risk rating changes and offer a look at maps so attendees can understand what the zones are and how those zones are changing.

The first hour will be dedicated to one-on-one question- and-answer sessions. Speakers then will present information for current homeowners and people looking to purchase or sell their home, officials said.

We thank the city for scheduling the Town Hall and the officials and staffers who will take part.

If you have questions, this would be a good opportunity to get some answers.

General information may be found at https://www.fema.gov/flood-insurance/risk-rating where FEMA has posted a variety of fact sheets.

We also have attached two here, one a general overview of the changes, the other, how the changes apply in Florida. Both are provided by FEMA.



–Breeze editorial