What to Expect with New Flood Insurance Rates

Flood insurance rates through the National Flood Insurance Program are changing beginning Oct. 1 as the new Risk Rating 2.0 is implemented. All new policies will be rated with RR 2.0 as of Oct. 1, and current policies will reflect the RR 2.0 rate as of April 1, 2022.

“Some properties in Pennsylvania will see increases, some will see decreases and others will remain the same,” according to Maggie Dunn, outreach coordinator for the Mitigation Division at Federal Emergency Management Agency Region 3, which includes Pennsylvania, Delaware, District of Columbia, Maryland, Virginia and West Virginia.

FEMA expect 56% of Pennsylvania policy holders will see an increase up to $10 per month, 7% will see $10-$20 increase per month and 7% will see $20 or more monthly increases. Thirty percent of policies will see an immediate decrease in their monthly payment.

“This is the biggest change to the NFIP in the last 50 years and it is transforming the program,” said Dunn, who recently spoke to Realtors® at the PAR Business Meetings. “The Risk Rating 2.0 has been endorsed by the National Association of Realtors® and will provide more equity in policies so individuals no longer pay more than their share in flood insurance premiums based on the value of their homes. We expect that two-thirds of policyholders with older homes will see a premium decrease.”

Dunn noted that prospective buyers will be able to obtain a flood insurance quote to assist with their overall financial plans and the cost of a “mandatory purchase” flood insurance policy can be determined earlier in the loan underwriting process.

The new Risk Rating 2.0 methodology for premiums will reflect a property’s unique flood risk based on the cost to rebuild a property, distance to coast/ocean/river, river class, flood type (fluvial/pluvial), ground elevation, first floor height, construction type/foundation type and broader range of flood frequencies. Elevation certificates will no longer be required.

Dunn said what is not changing is statutory rate caps on annual premium increases, availability of premium discounts, transfers of policy discounts to new homeowners, use of flood insurance rate maps for mandatory purchase and availability of premium discounts for Community Rating System participation. A list of Pennsylvania communities that are CRS eligible is available online.

When working with buyers who may need to purchase flood insurance, remember to start that process as soon as possible to ensure that the buyers can get the necessary coverage and that they understand how rates may increase over the next several years. “The PAR Agreement of Sale includes a Property and Flood Insurance inspection option for exactly this purpose,” said PAR staff attorney Desiree Brougher, “So buyers and buyer agents should consider not waiving this provision if flood insurance is in play.”

An appeal of the policy can be made but has to be supported by additional data or information from the policy holder. For example, a policy holder may appeal the replacement cost value listed on the declarations page by comparing it to their homeowners’ policy. Or a policy holder could fill out Section E of an elevation certificate form and provide that information if the information on the policy isn’t correct. The policy holder would submit the information for the appeal through their insurance agent.

Bill Bradfield, the state NFIP coordinator for the Pennsylvania Emergency Management Agency, made a strong appeal for all homeowners to consider flood insurance for their properties.

“There are a number of myths that people have about potential flood damage,” Bradfield said. “Floods are the No. 1 natural disaster in the U.S. Basically if it can rain, it can flood and just a few inches of water in your home can cause tens of thousands of dollars in damage.”

“What many homeowners don’t realize is that their homeowners policy does not cover flooding; only flood insurance covers flood damage,” he added. “Many think disaster assistance will cover the damage that a property incurs from flooding. In recent flood disasters, assistance was less than $10,000.”

A summary of the entire presentation given by FEMA and PEMA is available online.