Risk Rating 2.0

The National Flood Insurance Program (NFIP) underwent a major overhaul, effecting new commercial and residential policies beginning Oct. 1, 2021, and policy renewals beginning April 1, 2022. 

The legacy rating system was primarily based on the lowest floor of the structure in relation to the base flood elevation and corresponding flood zone. Under the new system, Risk Rating 2.0, the replacement cost value, square footage of the subject property, distance to water, and foundation types will be considered when determining flood premiums. 

Existing policy holders need not fear huge rate increases, as most premiums are capped at a 15-18 percent increase per year. According to the Federal Emergency Management Association (FEMA), 26 percent of policyholders in North Carolina can expect to see a reduction in their premiums, including severe repetitive loss properties. Alternatively, 65 percent may see an increase of less than $10 per month, with 9 percent seeing an increase of more than $10 per month. 

Unlike prior program changes, this one includes positive benefits to some policy holders, the first being that elevation certificates are now optional. However, it is important to note that we are seeing some reductions in premiums when elevation certificates are submitted for underwriting consideration.

Since the NFIP will no longer be strictly using flood zones to determine premium rates, this also removes the need for property owners to obtain map amendments for more favorable ratings. Grandfathering based on flood zones or base flood elevations will be phased out over time. For real estate transactions, assigning the flood policy from the seller to the buyer is no longer necessary. Every buyer should, however, obtain a copy of the seller’s flood insurance policy. 

If you are considering making changes to your home or other property, elevating the mechanical equipment above the first living floor or adding approved/certified flood vents to your foundation may assist in lowering your rating. We highly recommend contacting your flood insurance agent to confirm how your policy may be affected before making any modifications to your property unless those changes are for the express purpose of complying with local flood mitigation or local floodplain management ordinances.  

For more information about changes to the NFIP, please contact your trusted flood insurance agent.

Lisa A. Sharrard, CFM, CPM, ANFI, is owner of Choice Flood Insurance. Before entering the private sector in 2010, she served as the NFIP Coordinator for the South Carolina Department of Natural Resources. At FEMA’s invitation she had input into Risk Rating 2.0.