New Flood Insurance Rate Renewals Begin on April 1

The second phase of the transition to the Federal Emergency Management Agency’s (FEMA) Risk Rating 2.0 begins on April 1, when home owners who currently have flood insurance will begin to see the revised rates as their policies are renewed.

As NAHBNow previously reported, FEMA is transforming the way it calculates premiums for flood insurance policies that are made available under the National Flood Insurance Program (NFIP) so that they better reflect the actual risks properties face.

Instead of relying on the Flood Insurance Rate Maps to determine a home’s risk, the new process will factor in details that are specific to each home, such as elevation, distance to flooding source and cost to rebuild. As a result, some rates will go up, and some rates will do down.

To date, it has been difficult to fully understand what the new process might mean for any given property, as FEMA has provided little guidance regarding how base rates will be calculated or how credits for elevation or other mitigation measures will be reflected in final premiums. These uncertainties could play a big role in home purchase decisions; if rate changes are steep, it could adversely impact some sales.

In an effort to provide more certainty to home owners and prospective buyers, Sens. Bill Cassidy (R-La.) and Kirsten Gillibrand (D-N.Y.) recently introduced a bill to help. The Flood Insurance Pricing Transparency Act would require FEMA to publish the formulas used to calculate mitigation credits for policyholders under Risk Rating 2.0. The bill also requires FEMA to release a toolkit that could be used to estimate the cost of insurance for new construction without compromising proprietary information.

Importantly, there other aspects of the NFIP that are not changing under Risk Rating 2.0 and may provide some relief. Rate caps, certain premium discounts and the ability to transfer policy discounts to new home owners, for example, can minimize policy costs. Finally, Congress will also have an opportunity to tailor an approach to affordability when it considers reauthorizing and reforming the NFIP, which expires at the end of September 2022.