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What Does FEMA’s Risk Rating 2.0 Mean for You?

Updated: Jun 21, 2023

Flooding causes significant damage to homes and businesses nationwide, and increasing climate change will only continue to make matters worse. According to a recent report from the First Street Foundation, U.S. homeowners face $18.8 billion in flood damages annually, and further research has found that climate change is likely to cause these damages to rise 61 percent over the next 30 years.

FEMA announced the long-awaited implementation of Risk Rating 2.0 planned for October 2021. This new methodology from the National Flood Insurance Program (NFIP) is designed to assess flood risk more carefully and in turn, adjust rates to reflect a property’s flood risk more accurately.

This new system would replace the NFIP’s current practice of assessing flood risk based solely on flood zone and elevation. While this is a needed change, much remains unknown about how this new methodology will truly impact homeowners, leaving many to speculate.

What Does It Mean?

Congress currently restricts FEMA from raising household flood insurance premiums by more than 18% per year. Under Risk Rating 2.0, some homeowners will face an 18% increase each year for the next 10 years or more. According to FEMA, NFIP policyholders will see premium increases of $8 a month on average. FEMA expects 23% of policyholders to see their premiums decrease an average of $86 per month, while 66% will see premiums increase up to $10 per month and another 11% will see average increases of more than $10 or $20 a month.

While no one likes to see their bills go up, these rate hikes are necessary to keep the government’s flood insurance program solvent. Right now, many NFIP policyholders are underpaying for flood insurance. In Florida, for example, The First Street Foundation found that “average expected annual loss for structural damage to property” was calculated at $11,865, while the average NFIP insurance premium for Florida properties in special flood hazard areas (SFHA) was said to be $2,478. For those outside of the SFHA, First Street calculated an expected average annual loss of $3,563 per property while the amount paid in insurance premium was an average of only $461.

Beginning August 1, NFIP policyholders will be able to contact their insurance agent to learn more about Risk Rating 2.0, and how it will affect them. Starting October 1, 2021 all new policies will be subject to the revised rating methodology. The new rates will go into effect for policies renewing on or after April 1, 2022 as well.

There Is Another Way

Evaluating a property’s flood risk more accurately without relying solely on FEMA’s outdated flood maps is a step in the right direction and should help homeowners better understand the level of flood risk they face. However, not all flood insurance buyers have to accept these changes. There are options.

Private flood insurers continue to offer convenient and cost-effective access to quality flood insurance. Benefits of private policies include more competitive and accurate rates, shorter waiting periods for policy inception and in some cases, no elevation certificate requirement as is the case with policies obtained through

Plus, with private flood insurance policyholders get access to superior customer service, faster quoting processes, additional coverage options, and higher limits than are available through the NFIP. For example, the maximum amount of building coverage through private flood insurers may be as much as $4 million, while the NFIP offers only $250,000. Additionally, private flood insurers may have contents coverage that doubles what’s available through the NFIP.

While Risk Rating 2.0 will decrease rates for some current NFIP policyholders, there are many who will face significant rate hikes in the months and years to come. By working with a private flood insurer, homeowners may be able to secure coverage that better assesses their flood risk and addresses their needs – all while having access to more comprehensive policies, fair rates, and a greater range of options than the NFIP’s Risk Rating 2.0 system will provide.


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