Any homeowner can experience a flood, but for those who live in the highest risk areas, the price of flood insurance can have a major impact on their budgets. The Federal Emergency Management Agency is introducing a new flood insurance premium assessment system that begins on October 1, 2021, for new policies. The new system starts for policy renewals on April 1, 2022.
What do we know about the new system and how it may impact homeowners?
Why the change is being made
FEMA has been using the same rating system since the 1970s which relies primarily on a property’s elevation within a zone on a Flood Insurance Rate Map. FEMA’s stated goal with the new system, which takes more risk factors into account, is to set more equitable rates.
What the new variables are
FEMA includes several new variables in the Risk Rating 2.0 system:
- Flood frequency
- Flood types
- Distance to a water source
- Property characteristics
- Cost to rebuild
What this means for homeowners
Policyholders with lower-valued homes are likely to see rate decreases due to the cost to rebuild being a factor in the new system. For the same reason, homeowners with higher value homes will probably see rate increases. However, statutory limits prevent most rates from going up by more than 18% per year.
About 37% of Connecticut homeowners are expecting to see a premium reduction, while the other 63% will likely see their rates increase. As climate change continues to affect the rate and severity of storms, homeowners will need to weigh the price of flood insurance more heavily when making purchase decisions.