Understanding Risk Rating 2.0: Requirements vs. Rates
Risk Rating 2.0 is set to go into effect on October 1, 2021 for new flood insurance policyholders and April 1, 2022 for renewal of existing policies, making a direct impact on flood insurance premiums and causing those involved in real estate transactions to have inevitable concerns and questions.
From our perspective as flood mapping experts, not insurance providers, we feel it’s important that real estate agents, buyers, sellers, and current homeowners understand the difference between requirement and rate, and know that RR2.0 is only a change to the National Flood Insurance Program (NFIP) insurance premium rating system, not the requirement of mandatory flood insurance.
Being clear on this distinction and having a trusted flood zone determination leader to help confirm or challenge a buildings’ flood zone status is critical when evaluating the nuances of a property’s true flood zone status.
MyFloodStatus is a flood zone determination company. We do not provide flood insurance. Please consult with a flood insurance agent to understand flood insurance premium options.
What is Risk Rating 2.0?
The NFIP is the primary source of flood insurance coverage for residential properties in the United States, and since the 1970s, NFIP rates have been based on relatively static measurements, such as a structure’s location within a flood zone and Base Flood Elevation on FEMA’s Flood Insurance Rate Map (FIRM).
RR2.0 is a new pricing methodology that seeks to incorporate more variables into the calculation of flood risk ratings, with the goal of attributing more accurate rates to policyholders nationwide.
New Variables Considered in Risk Rating 2.0
FEMA claims RR2.0 will allow rates to be applied more equitably across all policyholders, calculated based on key variables like:
Distance to flooding source
Foundation Type
Ground Elevation
Building Occupancy
Prior Claims
Cost to Rebuild
And more
It is notable that two variables not considered under RR2.0 include FEMA Flood Zone and Base Flood Elevation; however, those two variables are still used to determine the requirement of mandatory flood insurance.
Risk Rating 2.0 affects Rating, NOT Requirement
RR2.0 does not change Flood Insurance Rate Maps (FIRMs) or any properties’ official flood zone status. It is a change to the rating process that will attribute a flood insurance cost to a specific insured structure.
FIRMs, which depict the locations of FEMA flood zones, will continue to be used to determine if a structure is located in a Special Flood Hazard Area (SFHA), aka a high-risk zone. This is what dictates a mandatory flood insurance requirement on any federally backed loan, by law.
Lenders will retain the prerogative to require flood insurance, regardless of federal mandates, in order to protect the collateral securing the loan. Clients will still be able to challenge a flood zone status for potential removal of the requirement altogether.
Confirming or Challenging Official Flood Status
The process of challenging an official flood zone status does not change, and always starts with securing a certified, official structure-based flood zone determination from MyFloodStatus.
In contrast, free online resources are not official, certified determinations. They typically lack detail and clarity, and can further complicate your attempts to obtain clear, reliable flood zone information on a property.
MyFloodStatus reports are:
Structure-based, built on superior data for pinpoint accuracy
Include visual mapping detail using FEMAs Effective FIRM (and Preliminary if released)
Include full support of our team of Certified Floodplain Managers
With your MyFloodStatus report, our experts will be able to review all detailed data available that may affect flood insurance requirements. They will be able to guide you in any options for possible removal of requirements, with an Elevation Certificate or Letter of Map Amendment (LOMA).
Once you’ve confirmed the buildings’ true flood status, you can proceed appropriately in evaluating the best options for you (or your clients) to protect their real estate investment.
To learn more about challenging a structure’s flood zone status (and subsequent flood insurance requirements) download “How to Challenge Flood Status in 3 Simple Steps.”
MyFloodStatus is a flood zone determination company. We do not provide flood insurance. Please consult with a flood insurance agent to understand flood insurance premium options. The information provided is for informative purposes only and is not intended to be legal advice or a legal opinion. For legal advice, please consult an attorney.
Resources
https://www.fema.gov/flood-insurance/risk-rating
https://fas.org/sgp/crs/homesec/R45999.pdf
https://www.fema.gov/sites/default/files/documents/fema_rr-2.0-equity-action_0.pdf
