Risk Rating 2.0: The Average Cost of Flood Insurance vs. Actual Cost
Under Risk Rating 2.0, have your clients seen favorable changes to their premiums? FEMA estimated that, on average, 23% of existing National Flood Insurance Program (NFIP) policyholders would see an immediate decrease of $86 per month on their premiums. On average, 66% would see an increase of no more than $10 per month. But these are national averages, and your clients’ individual experiences are bound to differ. How are actual costs changing, and what can be done to help keep rising costs under control?
How does Risk Rating 2.0 work?
Risk Rating 2.0 utilizes multiple data sources to determine the cost for coverage. Previously, the NFIP’s legacy rating system relied primarily on a property’s elevation relative to the Base Flood Elevation (BFE) to determine flood premiums. Rating factors now include:
Properties that experience more floods of varying types, that are near water and at a lower elevation, and that are more expensive to rebuild, are more likely to see their flood insurance rates climb. Some states, Florida and Louisiana for example, hit many of these geographic checkboxes, and some residents of these communities are feeling the greatest sting.
Risk Rating 2.0 rate changes in Florida and Louisiana
Forbes Advisor reviewed FEMA’s ZIP code-level data to get a more specific understanding of how flood insurance rates are estimated to change. In Florida, 82% of residents with flood insurance are expected to see an increase of less than $20 per month. However, some policyholders in three key Florida ZIP codes are looking at an average increase of $80 per month, or $960 annually:
Anna Maria (34216) – 9.8% of policyholders
Captiva (33924) – 5.7% of policyholders
Boca Grande (33921) – 4.6% of policyholders
Only one other ZIP code in the nation is estimated to see more policies rise that high. In Lawrence County, Ohio (45645), 12.5% of policyholders are facing an average $80 per month increase.
Louisiana, another coastal state with a long history of hurricanes and flooding, is also seeing flood insurance rates jump for some individuals. For instance, one resident of St. Charles Parish currently pays $567 annually for flood insurance on his 2,400 square foot house. His insurance agent quoted him an annual cost of $8,100 under the new methodology. While NFIP premiums are capped at an 18% increase per year for renewing policyholders, the long-term impact on some individuals is staggering as they move toward the full rating increase.
Louisiana U.S. Congressman Garret Graves is concerned for constituents in these situations.
“We have seen rates going from $560 a year to $6,000, $7,000 in St. Charles, Lafourche and other areas,” he said at a March townhall meeting. “We’re continuing to work with FEMA, we’re trying to educate other members of Congress that are going to be impacted by this, helping them to understand how awful this is going to be on communities all across the United States.”
The Flood Insurance Pricing Transparency Act
Graves’s fellow legislator, Louisiana Senator Bill Cassidy, is co-sponsoring a bill with New York Senator Kirsten Gillibrand to introduce more transparency into how FEMA calculates NFIP rates under Risk Rating 2.0.
The bipartisan Flood Insurance Pricing Transparency Act was introduced in March 2022. According to a press release from Senator Cassidy’s office, the bill:
“requires Federal Emergency Management Agency (FEMA) to publish the formulas used to calculate mitigation credits for policyholders under Risk Rating 2.0. It also requires FEMA to release a toolkit that could be used to estimate the cost of insurance for new construction, without compromising proprietary information.”
This legislation, if passed, wouldn’t change flood insurance premiums. However, the hope is that it would help “[a]ctive and prospective policyholders, alongside builders, bankers, real estate professionals, and local officials . . .” to understand how individual premiums are calculated. People could then perform a cost-benefit analysis to determine whether to implement flood mitigations to try to lower the premium.
How Can You Help Your Individual Clients?
At the end of the day, each of your clients will have their own unique experience under Risk Rating 2.0. This is the intent of the program revisions, so that people pay according to their specific risk. It’s not all horror stories. New England, for example, has the largest percentage of policyholders who should see their premiums decrease by $100 per month. However, if your client is not one of these fortunate policyholders, private flood insurance may be an option. EZ Flood rates are unaffected by Risk Rating 2.0, and our product may provide the flexibility and coverage to help protect your client, at a competitive price.
This article is provided for general informational purposes only and is not intended to provide individualized advice. The article is not a replacement for any NFIP publications. All descriptions, summaries or highlights of coverage are for general informational purposes only and do not amend, alter or modify the actual terms or conditions of any insurance policy. Coverage is governed only by the terms and conditions of the relevant policy.