{"id":22254,"date":"2023-05-25T14:33:50","date_gmt":"2023-05-25T14:33:50","guid":{"rendered":"https:\/\/www.anthonydidonato.net\/wordpress\/?p=22254"},"modified":"2023-05-25T14:33:51","modified_gmt":"2023-05-25T14:33:51","slug":"risk-rating-2-0-takes-effect-what-to-know","status":"publish","type":"post","link":"https:\/\/www.anthonydidonato.net\/wordpress\/risk-rating-2-0-takes-effect-what-to-know\/","title":{"rendered":"Risk Rating 2.0 Takes Effect: What to Know"},"content":{"rendered":"\n

Still don\u2019t understand the National Flood Insurance Program\u2019s new pricing methodology? Get an update from NAR\u2019s Insurance Committee chair.<\/p>\n\n\n\n

There\u2019s still confusion around the National Flood Insurance Program\u2019s new pricing methodology called Risk Rating 2.0: Equity in Action<\/a>, which went into effect in October 2021. Cyndee Haydon, chair of the National Association of REALTORS\u00ae\u2019 Insurance Committee and a broker-associate at Future Home Realty in Tampa, Fla., offers an update on what you need to know.<\/p>\n\n\n\n

Q: What Is Risk Rating 2.0?<\/h2>\n\n\n\n

A: When developing flood insurance prices, the NFIP now rates each home individually\u2014rather than by zone\u2014using modern technologies, multiple flood risk variables and property-specific characteristics, including elevation, distance to water and cost to rebuild. A third of flood insurance policyholders are paying a full-risk rate while others are paying a subsidized rate that is gradually increasing to full risk over time. The new methodology does not affect flood mapping or the federal mandate to purchase flood insurance.<\/p>\n\n\n\n

What\u2019s Happening Now?<\/h2>\n\n\n\n

All NFIP policies have transitioned to Risk Rating 2.0 as of May 1, and there have been no reports of delays or disruptions to home sales. In fact, Risk Rating 2.0 can help real estate pros build trust with clients because it helps buyers understand the true actuarial rate over time before they purchase. The rollout of Risk Rating 2.0 has been surprisingly smooth, considering it\u2019s the first major update to NFIP pricing in 50 years.<\/p>\n\n\n\n

Why Were These Changes Needed?<\/h2>\n\n\n\n

After the passage of the Biggert-Waters Act in 2012, REALTORS\u00ae uncovered many problems with the previous flood insurance rating methodology, which had not been updated in a half-century. Risk Rating 2.0 was established as a result and provided much needed updates<\/a> based on actuarial risk, science and common sense.<\/p>\n\n\n\n

Here\u2019s one example: Under the old methodology, an NAR member was quoted an annual rate of $87,000 for flood insurance on a $300,000 home. NAR asked FEMA and independent actuaries how the rate could be so high for the property, a modest home that never flooded, and no one could explain it. Under Risk Rating 2.0, FEMA now uses science to cap the maximum possible NFIP rate at $12,125 per year, which only a few high-value, high-risk property owners would pay. For that same $300,000 home, flood insurance now costs only $1,247 under the new rating system.<\/p>\n\n\n\n

Because pricing in the old methodology was based on national flood zones, older and low-value properties subsidized new, high-value properties. NAR\u2019s Insurance Committee collaborated with FEMA and funded an independent actuarial study to help propose a solution. As a result, Risk Rating 2.0 ensures that each property owner pays for only their own individual risk and no one else\u2019s.<\/p>\n\n\n\n

Risk Rating 2.0 also provides consumers with full disclosure on flood insurance rates. After the Biggert-Waters Act, I helped clients whose rates jumped over $10,000\u2014and they were required to pay it in one lump sum after buying a home. Believe me, you don\u2019t ever want to have to take calls like this from former clients. I didn\u2019t sleep until Congress rolled back and put the rates on a glidepath with the Flood Affordability Act of 2014, which, unfortunately, was only a temporary measure. Risk Rating 2.0 provides a permanent solution, giving new NFIP policyholders the science-based, actuarially sound, full-risk flood insurance rates upfront before they purchase.<\/p>\n\n\n\n

Why Do Some Say NFIP Rates Have Doubled or Tripled?<\/h2>\n\n\n\n

Rates have not doubled or tripled anywhere in the United States. Some media reports are taking out of context a FEMA projection of what the average full risk rate might look like given today\u2019s conditions.  However, those are not actual rates paid by two-thirds of policyholders, and by law, rates cannot increase more than 18% per year.  Also, flood risk is dynamic: Many factors can impact the current projection, including future changes in climate, inflation and the policyholder population. What FEMA data shows is: 1) most policyholders are not paying a full-risk rate and 2) it will take at least five to 10 years before they do if all things stay the same. Here is the actual 2023 NFIP rate data.(link is external)<\/a><\/p>\n\n\n\n

What\u2019s Next?<\/h2>\n\n\n\n

Now that Risk Rating 2.0 is in place, NAR\u2019s Insurance Committee is turning its attention to other priorities, including:<\/p>\n\n\n\n