Things You Need to Know About FEMA
Risk Rating 2.0: Equity in Action
For the first time since its inception in 1968, FEMA has updated its rating system for the National Flood Insurance Program (NFIP). The new rating system, officially titled “Risk Rating 2.0 Equity in Action” was adopted in April of 2022, and it has sparked much congressional and customer controversy. According to FEMA, over 70 percent of all policyholders have experienced or will experience an increase in total premium under the new rating methodology. However, it’s not all bad news when it comes to Risk Rating 2.0.
With a different rating system comes new items of algorithmic importance.
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Let’s start out with the obvious, a new rating system entails new ways of calculating a policyholder’s premium. From our experience, Risk Rating 2.0 prioritizes the estimated replacement cost, measured distance to water, and other property characteristics more than ever before.
You will no longer need an elevation certificate (EC) to qualify for an NFIP policy.
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This means that submitting an application for an NFIP quotation is now easier than ever! Without the need for an EC, it takes only seconds to see if FEMA has the right flood insurance needs for your property. However, it does not hurt to submit a valid EC if you have one—it can only help your premium rate.
Maintaining an NFIP policy may now be more valuable than ever before.
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If you took advantage of low rates with the NFIP’s old rating system, it may be prudent to hold onto that policy! If “Risk Rating 2.0” calculates a higher premium for your property, you will only experience an 18 percent annually compounded increase on your premium—until, eventually, you reach that calculated rate. FEMA is calling this continual rise in premium rates the “glidepath.” Although daunting, taking a ride on the glidepath and maintaining a continuous policy through the NFIP is still largely significantly cheaper than options from the private flood insurance market.