The flood insurance market saw significant changes in 2021, with the two-phase rollout of Risk Rating 2.0 from the National Flood Insurance Program (NFIP) setting the stage for flood insurance rates in 2022.
Most homeowners who carry flood coverage insure for flood risks through the NFIP, and some NFIP policyholders saw increases while others saw rate decreases. But the flood insurance market continues to expand, with a growing number of private market insurers now offering competitive rates in many areas.
The NFIP’s Risk Rating 2.0, first introduced for new policies beginning October 1st, 2021, will also apply to NFIP policy renewals on or after April 1, 2022. Read more about the changes with Risk Rating 2.0.
How Will NFIP Flood Insurance Rates Change in 2022?
Because Risk Rating 2.0 utilized a two-phase rollout, new policies written on or after October 1st, 2021, already use the new risk rating system. However, existing policies up for renewal will use Risk Rating 2.0 for all NFIP policies that renew on or after April 1st, 2022.
While many homeowners may see minimal change in rates or decreases, Risk Rating 2.0 brings significant changes for other homeowners and business owners. In effect, Risk Rating 2.0 brings an end to subsidized pricing in areas where construction began before an initial Flood Insurance Rate Map (FIRM) was in place for the community.
Risk Rating 2.0, also called Equity in Action, aims to bring fairer flood insurance pricing and align premiums more closely with risk. Risk Rating 2.0 also modernizes flood insurance underwriting by using 3rd party data and leveraging technology to understand flood risk for specific properties better.
Prior to Risk Rating 2.0, several property types received subsidized pricing due to their construction date. These properties, known as Pre-FIRM, will see the most significant rate change as the NFIP implements Risk Rating 2.0.
However, because Risk Rating 2.0 paints a more detailed picture of flood risk for individual properties, other property owners may also see rate changes. Rates may be higher or lower than in the past, depending on flood risks unique to each property.
New rates affect new NFIP policies or NFIP policies up for renewal.
In 2014, Congress passed the Homeowner Flood Insurance Affordability Act, affecting how premiums adjust toward new rates. Under the 2014 law, premiums for certain property types with subsidized pricing must increase 25% per year until premiums reach market rates.
While the provision helps phase in new pricing over time, some properties may still see sizeable changes in premiums.
Which Types of Flood Policies Will Be Affected?
Risk Rating 2.0 may lead to higher or lower rates based on several factors, but the following property types may see the most significant premium changes:
- Non-primary homes, including vacation homes and second homes with Pre-FIRM subsidized policies.
- Pre-FIRM Business properties.
- Severe Repetitive Loss (SRL) properties.
- Substantially damaged/substantially improved properties.
The following property types will also see increases:
- Policies for subsidized Pre-FIRM primary homes can expect a premium increase of 7.7%.
- Pre-Firm subsidized properties not listed above must increase at least 5% per year until premiums reach market rates following the Homeowner Flood Insurance Affordability Act.
Private Market Flood Insurance Options
While the NFIP remains the largest flood insurance provider, a growing number of private market insurers now offer coverage in many areas. Recent changes also allow policyholders to switch flood insurance providers mid-term rather than waiting for policy expiration.
The NFIP can often refund unearned premiums for property owners who switch to an approved private market policy. This new flexibility opens opportunities to insure through other providers who may offer lower rates or higher coverage limits.
NFIP flood policies have served as the bedrock of flood protection for decades, but NFIP policies weren’t without their shortcomings. Specifically, NFIP policies limit coverage for buildings and personal property, often well below the replacement cost needed in a total loss.
Newer flood insurance options available through private market providers allow you the freedom to choose the coverage you need, while relaxed rules for NFIP policies enable you to switch providers painlessly.
Today’s private market flood policies can work in tandem with an existing NFIP policy to increase effective coverage limits. Or they can provide standalone protection with wide acceptance among many lenders.
Some private market policies also offer more flexibility regarding deductibles, reducing out-of-pocket expenses if you have a loss or allowing you to reduce premiums by choosing a higher deductible.
Many homeowners can save money on flood insurance premiums while also enjoying more customization options to fine-tune coverage limits that offer better protection for your home.
At Coastal Insurance, we work with leading private market insurers to build insurance packages personalized to your needs. Our knowledgeable insurance advisors can customize an affordable solution to protect your home, second home, or your business.
Should I Get A Quote if My Rates Won’t Change?
If your rates won’t change or you’ll only see a slight increase in premiums, it may seem best to stay with your current policy. However, there are some compelling reasons to consider private market flood insurance options.
Key among these are higher limits and seamless coverage that pairs well with your other insurance policies.
NFIP policies exist to ensure universal access to flood insurance. As a trade-off, coverage limits for buildings and property are often artificially low. In the event of a complete loss, many NFIP policyholders may still have significant unprotected losses.
Private market policies can offer higher coverage limits, fully protecting your home if the unexpected happens. Customize your coverage limit to match your needs.
Many private market policies can also pair seamlessly with your home insurance policy, patching troubling and potentially costly coverage gaps often seen with standard NFIP policies.
Often, you can save money while also enjoying better protection for your home and belongings. Technology tools such as artificial intelligence and advanced mapping help private market providers bring more affordable coverage with additional policy features.
Fine-tune your flood policy to match your budget. Private market flood insurance policies offer more control over your deductible. You can choose a higher deductible to reduce premiums or a lower deductible to reduce your out-of-pocket risk.
Reach Out Today to Compare Flood Insurance Rates
As Risk Rating 2.0 impacts premiums for policyholders up for renewal in 2022, the rate change offers an opportunity to explore private market options. Now is the time to compare rates and coverage choices that provide enhanced coverage.
If you have questions about your home and flood coverage, we recommended speaking with our team of state-licensed insurance advisors to learn more about home and flood insurance packages. With Coastal Insurance Solutions, our team of advisors will partner with you to tailor a package to your unique needs and compare quotes from the finest insurance companies.
About the Author
David W. Clausen is the CEO of Coastal Insurance Solutions. With over 20 years’ experience and over 1 billion insured, David and Coastal Insurance Solutions are the recognized leaders in high net worth insurance. For the third consecutive year, David Clausen has been awarded Top Producer by Insurance Business America. David is a trusted high net worth insurance expert who’s published more than 200 articles. His articles & press releases have generated over 500K pageviews and has been featured on blogs such as Google News, Yahoo Finance, CNBC, Market Watch, Fox, The New York Times, etc. David founded Coastal Insurance Solutions in 2001 after earning a BBA from the State University of New York College at Oswego.