If you’re like most people, you probably don’t spend your weekends catching up on the most recent updates in the flood insurance world… and we don’t expect you to! For this reason, we gathered all of the information necessary to keep you up-to-speed on what’s happening with The National Flood Insurance Program and how it could affect your policy.
Term Risk Rating 2.0
Beginning October 1, 2021, The National Flood Insurance Program will be implementing a new rating system called “Term Risk Rating 2.0”. This change in the rating system is an attempt to transform a pricing methodology that hasn’t been updated in 50 years! 50 years is a good chunk of time, so this change is a pretty big deal. The goal of this change is to establish more consistent, actuarially sound rates.
What are the Rating Variables?
In short, “rating variables” are the different characteristics of individual policyholders that can help approximate the cost of your risk. The hope of this new rating system is to distribute premiums more broadly based upon building values and unique flood risks. Among the rating variables that are under consideration include…
- How often flood occurs
- What flood type occurs (storm surge, rain runoff, erosion, and river flooding)
Additionally, some long implemented rating methods, like built-in compliance, will be abandoned.
What Does This Mean for a Flood Insurance Policyholder?
These changes will affect all flood policies across the board. We know that some properties will have noticeably increased premiums, some will see significant reductions, and some may experience little or no change. We also know that these changes will not only affect Special Flood Hazard areas (A zone and V zone properties), but will also affect standard and preferred risk properties as well.
Key Dates to Remember
October 1, 2021 through March 31, 2022: Policyholders renewing in this window may retain the current rating system or move to the new platform based upon the most favorable rating received.
April 1, 2021 and forward: All policyholders renewing after this date will receive rates based upon the new platform.
All of this to say, the NFIP has abandoned the manual actuarial rating tables and will now rely upon rating algorithms to generate rates. We plan to re-examine these changes and affects in the coming week for additional commentary. In the meantime, we recommend contacting a licensed flood agent with specific knowledge of your flood area to help navigate these new flood changes and your unique property risk and rate!