FEMA’s new flood insurance methodology could lead to lower rates for 1.2 million policyholders, data shows


FEMA is updating its flood insurance maps and methodology for the first time since the 1970s. (iStock)

The Federal Emergency Management Agency (FEMA) is publish its new risk rating methodology which will create a new pricing for National Flood Insurance Program (NFIP) policies as of October 1, 2021.

NFIP is administered by FEMA and used by homeowners, business owners, and tenants to purchase federally backed flood insurance in areas at risk. FEMA explained that the new methodology and updated flood insurance rate maps use technology that results in more accurate flood risk rates. The new update will result in policy rate changes for some homeowners, including a decrease for 1.2 million policyholders, the data show.

This update, Risk Rating 2.0, will be the first update to FEMA’s Flood Insurance Rate Map (FIRM) since the 1970s. The new rates will take effect in October for both new policies. only for existing policyholders eligible for renewal. All remaining policies that renew on or after April 1, 2022 will be subject to the new pricing.

If you’re looking for ways to save money on your home insurance policy and want to explore private insurance options to cover flood loss, head over to Credible to better understand the different types of coverage. Discover Credible’s home insurance partners to get a free home insurance quote.

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Policy changes under risk rating 2.0

Under current policy, FEMA has explained that some homeowners take more risk financially than they should be.

“Currently, policyholders with lower value homes pay more than their share of the risk while policyholders with higher value homes pay less than their share of the risk,” the agency said. “Because the 2.0 risk rating takes into account reconstruction costs, FEMA can distribute premiums evenly among all policyholders based on the value of the home and a property’s unique flood risk. “

Data from the Association of State Floodplain Managers (ASFPM) and Pew Charitable Trusts shows 1.2 million homeowners, or 23.2% of all homeowners with an NFIP policy, will see their premiums drop. Conversely, 3.3 million borrowers (66.3%) will see a monthly increase of $ 0 to $ 10 in their premiums, 330,600 borrowers (6.6%) will see a monthly increase of $ 10 to $ 20 and 191,900 (3.8%) will see an increase of more than $ 20 per month.

With different amounts of coverage, it’s important to shop around for the right home insurance plan that fits your needs. Visit Credible to start the process and maximize value you benefit from your home insurance policy.

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Improve risk accuracy

FEMA explained that its new Risk Rating 2.0 flood insurance policy takes a “transformational leap forward” and sets more precise rates using technology. It builds on its datasets by adding private sector information, disaster models and evolving actuarial science.

It will also assess more flood risk by going beyond disaster-stricken areas and include the frequency of flooding, as well as several types of flooding such as river overflows, storm surges, coastal erosion and heavy precipitation. It also incorporates distance to a water source and property characteristics, such as elevation and cost of reconstruction.

Finding the most suitable home insurance coverage is essential, and private insurance options are available. To make sure your flood insurance premium is right for your situation, visit Credible to check plans, providers, and costs.

Have a finance-related question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert column.

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