WHAT?!?!—FEMA Risk Rating 2.0

August 13, 2021

Not up-to-date with the Federal Emergency Management Agency’s new Risk Rating 2.0? Consider this a crash course in the new flood rating methodology, which will be rolled out in two phases starting Friday, Oct. 1, 2021.

Risk Rating 2.0 is an innovative theory, and we trust that in a few years, all independent agents and all policyholders will have an easier time understanding their flood insurance risks.

Here is what to expect in the coming weeks:

Phase 1

According to FEMA:

New policies beginning Oct. 1, 2021, will be subject to the new rating methodology. Also beginning Oct. 1, existing policyholders eligible for renewal will be able to take advantage of immediate decreases in their premiums.

For clarification purposes, FEMA probably should have said, may be eligible to take advantage of immediate decreases.

Only about 23% of policyholders will see a decrease in premium; meaning about 77% of policies will see an actual increase. On average it looks like 66% of policies will see a $0-$10 monthly increase, with 11% seeing more than $10 of monthly increases.

FEMA is stating that on average, “23% of policyholders will see an immediate decrease of up-to-$86 a month,” and that, “individuals will no longer pay more than their fair share in flood insurance premiums.”

It will be interesting to see which policies are going to see those decreases. While it is not 100% confirmed, starting on Oct. 1, it should be the responsibility of the carriers to review the new RR2.0 rates versus the current legacy FEMA rates to confirm which is more beneficial.

Phase 2

According to FEMA :

All remaining policies renewing on or after April 1, 2022, will be subject to the new rating methodology.

We know that 77% of the renewals from Oct. 1, 2021 to April 1, 2022, will not benefit from the new RR2.0 rates, so they get to enjoy one more term of the less expensive legacy rates. After April 1, 2022, all new business and all renewals will be converted to RR2.0 rates.

The flood manual and rollout

While the new Flood Insurance Manual is not yet out, draft copies are available. FEMA plans on releasing the final FIM sometime in September 2021. With only a few weeks until Oct. 1, FEMA is running down to the wire with this new rollout. It is expected that agents will be able to quote with the new RR2.0 rates starting Monday, Aug. 16, 2021. It does not appear there will be any delay of the Phase 1 launch, and everything appears to be on track.

October is approaching and independent agents are starting to have conversations with new home buyers about the change and letting them know they are monitoring for the latest updates from FEMA.

We feel that as independent agents, it is important to get a grip on this, and there are many opportunities to do so through PIA and National Flood Insurance Program resources.

PIA Northeast will continue to update its members of all the upcoming changes. And, see the related article on RR2.0 in the September issue of PIA Magazine.

About the author…

Walter Conroy

Walter Conroy has 12 years of insurance industry experience. Currently, he is personal lines manager at Liberty Insurance Associates, in Millstone Township, N.J. He just celebrated his second anniversary as a member of the New Jersey Young Insurance Professionals, and currently he serves on the association’s board of directors.

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