Understanding Risk Rating 2.0: Requirements vs. Rates
Starting April 1, 2022, all National Flood Insurance Program (NFIP) policies will be priced under Risk Rating 2.0 upon their next renewal.
It’s important for lenders and investors to understand that RR2.0 is a change to the flood insurance premium rating system only, not the parameters of mandatory requirement.
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 performing due diligence on a building’s flood status and subsequent impact to your investment portfolio.
Read on to gain clarity on requirement vs rating, and how WTG can help you confirm or challenge flood insurance requirements, and navigate any potential steps to explore changes to those requirements.
WTG 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.
Flood Insurance Requirements
Flood insurance requirements are dictated by FEMA Flood Zones and Base Flood Elevation.
As FEMA simply puts it, flood insurance is required on “Homes and businesses in high-risk flood areas with mortgages from government-backed lenders”. But, to be more specific: Flood insurance is required when a habitable structure is within or touches a Special Flood Hazard Area (SFHA) if that structure has been secured with a loan from a federally regulated lending institution.
SFHA’s are the high-risk zones FEMA speaks of, and they are Zones that begin with A or V designated on FEMA flood maps or Flood Insurance Rate Maps (FIRMs)..
Free 1-Page Guide
Download our free 1-page guide, “Understanding The Differences Between Flood Insurance Requirements vs. Rating”, for your own reference, or to educate others.
New Variables Considered in RR 2.0
FEMA claims RR2.0 will allow rates to be applied more equitably across all policyholders, by taking into consideration variables like:
Distance to flood sourcing
Foundation Type
Ground Elevation
Building Occupancy
Prior Claims
Cost to Rebuild
And more
It’s notable two variables not considered under RR2.0 new pricing methodology are the FEMA Flood Zone, and Base Flood Elevation; however, those variables are still the dictating factors for the requirement of mandatory flood insurance.
RR2.0 does not change the Flood Insurance Rate Maps (FIRMs) or any properties’ building 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 status for potential removal of the requirement altogether.
How to Challenge Flood Status
RR2.0 does not change the process of challenging official flood status. This process always starts with securing a certified, official structure-based flood zone determination from WTG.
WTG flood zone determination reports provide superior accuracy, mapping detail for visual verification, and expert team support to evaluate all mapping data and advise on potential for removal of the flood insurance requirement.
To learn more about this, see “How To Challenge Flood Status in 3 Simple Steps”.
WTG 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
