Significant FEMA Flood Insurance Pricing Change Effective 10/1/21 - Why Should You Care? FEMA Pricing Calculation Methods Haven't Changed in 50 Years!

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On April 1st 2021, the Federal Emergency Management Agency (FEMA), part of the United States' Department of Homeland Security, announced a new pricing and rating method called Risk Rating 2.0 - Equity in Action. It will allow homeowners access to rates generated by a new-and-improved process of evaluating flood risks. FEMA also stated this initiative will provide equitable pricing to all policyholders, as it noted that homeowners with lower-value properties have historically paid more than necessary versus those with higher-value homes. 

Phase 1 of the new system begins October 1st, 2021 and will automatically take effect on all new policies starting from then. That day, current, eligible policyholders can expect to take advantage of pricing changes in their premiums.  Phase 2 will include existing policies renewing on or after April 1st, 2022. The price calculation methods have not been updated in 50 years, per FEMA.

When the changes occur, FEMA will consider the value and unique flood risk of a specific home instead of just considering the property's elevation and its 1% chance of flooding. According to FEMA, this means homeowners will receive customized rates based on more flood risk factors such as the specific type of flood (river/storm surge/coastal erosion) and the cost to rebuild a particular home (a very important, yet overlooked factor, especially if a homes requires elevation).

It is unclear what thresholds FEMA uses to consider a home 'high' or 'low' value. Also, will the price changes truly make an impact? Will they be considerable enough to help lower-value property owners get fair rates as FEMA suggests? I'm curious to see how this plays out........

Please take note of these important changes as hurricane season continues! I advise policyholders to contact the National Flood Insurance Program (NFIP), which administers all US flood insurance plans, directly at 877-336-2627 to determine how this news will impact premiums.


Receipts - FEMA Press Announcement https://www.fema.gov/press-release/20210401/fema-updates-its-flood-insurance-rating-methodology-deliver-more-equitable

https://www.washingtonwaterfronts.com/blog/fema-flood-insurance-changes-2021/

https://www.fema.gov/flood-insurance

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