Attention MLOs: Will FEMA’s new Flood Insurance Risk Ratings sink your next deal?

Why is this happening?

• FEMA is paying out more in claims than they are receiving in policy revenue.
• One of FEMA's goals is to make flood insurance more equitable for homeowners.

What is changing?

• The method by which flood insurance risk is assessed. 

When does this change go into effect?

• FEMA Risk Rating 2.0 went into effect on October 1, 2021. 
• Renewals are subject to new rates beginning April 1, 2022.

How has flood risk been assessed in the past?

• Standardized rate tables, flood zones and base elevation. 

How will flood risk be assessed under Risk Rating 2.0?

• An algorithm created by FEMA that includes flood variables such as:
  

Who will this affect?

• Current Flood policyholders and properties in flood zones. MOST policyholders will see an increase in their annual premium. Approximately 23% of homeowners will see a decrease in their premiums. 
• Higher-end homes in flood zones could realize a premium that's 4-5 times their current Premium. 
• This will also affect policyholders that carry “optional” flood insurance not required by a lender.

Will my policy increase immediately?

• All affected policyholders will eventually receive the 2.0 rates.
• Existing policies will have a premium increase up to 18% per year until fully risk-rated.

Recommendations:

• Elevation certificates are no longer required but CAN BE HELPFUL for rating. 
• If you are buying a house that currently has flood insurance, negotiate an arrangement to assume the seller's flood policy
• Utilize the seller's flood insurance information (policy # and Company the policy is written through) to procure your own flood insurance policy to apply the seller's current rating and discounts to your own policy.
• Do not allow your existing flood policy to lapse.
• Reach out to your insurance agent IMMEDIATELY to find out if you qualify for a lower rate. Although the policy will likely increase, it's better to start with a lower rate.

FEMA Risk 2.0 is very complicated, and I strongly encourage you to reach out to a qualified insurance agent or carrier with ANY questions. 

If you need an origination platform that gives you the flexibility and speed you need to overcome the constantly changing lending environment, schedule an interview with one of our specialists.

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