The National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA), is set to get an overhaul effective October 2020. In what FEMA dubs as “Risk Rating 2.0,” premiums will be based on how close a home is to the coastline and how much it would cost to replace, potentially affecting 3.5 million single-family policyholders of public Flood insurance.
In general, FEMA will begin assessing properties individually according to several variables, including hurricane rainfall, coastal surges and the distance to a body of water, in lieu of applying one formula across an entire flood zone when assessing flood risk and contract cost. FEMA will also factor in the replacement cost of the home, which could boost premiums for homeowners with higher-valued properties and decrease those with lower-cost homes. The new rates will be announced on April 1, 2020, and will be implemented six months later beginning Oct. 1.
FEMA’s current system calculates rates based on whether a home falls in a designated flood zone. Since higher-valued properties are more likely to hit the $250,000 insurance cap available with the NFIP because they face costlier damages, “there’s an inequity,” noted David Maurstad, FEMA’s deputy associate administrator for insurance and mitigation, in a press release from the federal agency. “Lower-value homes are paying proportionately more than higher-value homes. What we’re going to do is change an insurance-rating structure that hasn’t fundamentally been changed since the 1970s. We’re going to consider more flood risk than we currently do now.”
Additionally, the changes would leverage new loss-estimation technology, similar to what private insurers have developed with increasingly sophisticated models that account for variables including climate change.
FEMA hopes that a more risk-sensitive pricing could attract more homeowners to purchase Flood insurance, even if they aren’t required to. “People even outside the high-risk area will have a better understanding of what the specific risk is,” said Mr. Maurstad. “They will take the responsible action and insure for flood just like they insure for windstorms, hail and fire.”
With some homeowners set to see higher rates, FEMA said it is evaluating ways to minimize financial burden and unintended harm, such as through a phased-in approach to transition policyholders to the new system. Members of the House and Senate already are pledging close scrutiny of the plans being rolled out by FEMA.
Talk to your insureds about these changes and what they can potentially mean for them and their Flood insurance premiums. In addition, talk to us about our Flood insurance solutions.
Preventing Flood Damage
Just as important as securing the proper Flood coverage for insureds is providing them with risk-mitigation solutions. Following are some general tips you can share with your insureds:
- Take measures to protect the home from rising water, including:
- Raising the home on stilts or piers. Since even an inch of floodwater can lead to significant damage, raising the home above the flood level will substantially protect it.
- Install foundation vents or a sump pump. This allows floodwater to flow through the home, rather than pool around it. It provides both an outlet for flood water and relieves the significant pressure that floodwater can put on the walls and basement windows. Sump pumps are frequently used to pump water out of basements where flooding happens regularly.
- Apply coatings and sealants to the foundation, walls, windows and doorways to help prevent floodwater from leaking into the house through cracks.
- Raise electrical outlets and switches at least one foot above flood level in order to prevent significant electrical damage in the case of a flood.
- Ensure that all pipes entering the house have valves to prevent a flooded sewage system from backing up into the home.
- Point downspouts away from the home. If the gutter runoff is not pointed away from the house, and in an appropriate direction, it will pool at the corners of the house and may eventually create leaks in the basement.
- If a storm is imminent, or if flooding has already started, minimize flooding and water damage to personal property by:
- Turning off the water line, if that is the source of the flooding.
- Clearing out gutters and drains so that water can flow freely through them.
- Using sandbags to block any gaps that will lead to flooding.
- Moving rugs, furniture, electronics and other valuables to a higher floor of the home, or at least elevate them from floor level.
- Shutting off the electricity at the breaker panel, should floodwater be close to reaching your electrical system.
- If it's not raining, opening multiple windows to allow air to flow through the home.
- Turning on the sump pump or using a shop vacuum to remove water as quickly as possible.
We have also provided an additional resource to assist homeowners in being flood-prepared here.
RPS Flood Services handles Flood insurance placements for underlying National Flood Insurance Program (NFIP) and RPS’ In-House Excess Flood facility. The RPS team of experts can also assist with Flood Zone Determinations, Elevation Certificate ordering, Letter of Map Amendment and Removal (LOMA, LOMR), and NFIP Alternative Programs. Just give us a call.