Impact of rating changes to FEMA’s updated National Flood Insurance Program

With FEMA’s new National Flood Insurance Program’s (NFIP) rating system now in place, it’s time to review your insurance coverage on property that could potentially be impacted by flooding.

FEMA’s revised pricing system has resulted in changes to policies renewed after April 1, 2022. Under the new program, dubbed Risk Rating 2.0, some premiums increased. However, due to the integration of additional information within the system, nearly a quarter of policyholders should expect a decrease in premium at their next renewal, says Chas Lowe, Commercial Insurance Specialist at Zito Insurance Agency a division of Risk Strategies.

“This allows policyholders to make better-informed decisions when purchasing flood insurance,” says Lowe. “Most property insurance does not cover damage resulting from flooding, something many only discover following the impact of a weather-related event such as Hurricane Ian. It’s important that you work with an outside expert to identify the right coverage for your needs so you are not left unprepared — and uncovered should disaster strike.”

Smart Business spoke with Lowe about how to work with an expert to ensure your policy meets your needs and how the first changes to NFIP’s pricing system in more than 50 years may impact your policy.

Who needs flood insurance coverage?

For many, flood insurance is required under terms with a bank, such as a mortgage, while others independently elect to purchase coverage for property that has the potential to be impacted by a flooding event. In many cases, FEMA’s coverage may be the only option available, as private insurance companies pull out of the market due to a rising number of higher-impact incidents, along with increasing claims costs.

FEMA’s coverage is available to anyone with the potential to be adversely impacted by a flood-related event, with coverage backed by the U.S. government. It ensures property owners have access to coverage regardless of claims history, property location, etc. FEMA’s new Risk Rating program modernizes the rating system to be more dynamic, taking into consideration flood frequency, type of flood, distance between the property and water source and more accurate estimates to rebuild.

What do property owners need to consider?

Insurance is typically viewed as a necessary evil that people don’t want to think about, and too often, property owners purchase something that meets lender requirements and forget about it, failing to periodically review that it is sufficient to meet their needs.

Other factors to keep in-mind include are, has the flood map changed? Has it been surveyed recently, and are there any material changes that could impact the property? Is coverage mandated or elective? Is it with a traditional insurance carrier, or would it be better placed through FEMA?

It’s too early to assess the impact of the changes, but FEMA predicts nearly two-thirds of policyholders will see a moderate increase in premium costs, roughly a quarter will see a decrease and the remainder will remain stable. However, as owners continue to rebuild multiple times in the same location, FEMA’s flood insurance offering will continue to increase in price, while private carriers may be driven out of the market altogether.

How can an independent, experienced agent help navigate the changes?

Agents should familiarize themselves with the changes and be aware of the coverage nuances between available flood policies. Together with your agent, you should periodically review your coverage, as there may be more comprehensive and/or cost-effective options available.

Independent agents are uniquely positioned to provide value, as they deal with multiple carriers that each have their own appetite for coverage depending on your specific situation. With flood insurance top-of-mind for many, even those with properties not directly on the water should revisit their coverage.

Programs can be affordable, and having a policy in place can outweigh worrying about losing everything. Whether you are on the coast or further inland, you may be at risk. Talk to your agent, as it’s never too late to educate yourself about the options. ●

INSIGHTS Business Insurance is brought to you by Zito Insurance Agency a Division of Risk Strategies.

Chas Lowe

Commercial Insurance Specialist


Connect On Social Media
For more about how changes to the FEMA flood insurance program impact premiums and coverage,