Author: Chris Boggs​

Effective October 1, 2021, the Federal Emergency Management Agency (FEMA) adopted Risk Rating 2.0 for all flood policies written through the National Flood Insurance Program (NFIP). Depending on the write your own (WYO) carrier, this new rating program may be optional for policies renewing between October 1, 2021, and March 31, 2022. All new NFIP flood policies written from October 1, 2021, forward are subject to the new rating program.

Beginning April 1, 2022, all NFIP policies, whether a renewal of an existing policy or a new policy, are subject to Risk Rating 2.0 processes, procedures and rates. Selective Insurance, the Big I's partner for flood coverage, has developed a 15-minute tutorial describing the changes in the rating procedure resulting from the adoption of Risk Rating 2.0. The video and other key information can be accessed here.

Key changes that will be strange for those who have written and rated flood coverage for many years include:

• Flood zones are no longer a rating factor. Flood zones will remain a determining factor regarding which properties require flood insurance when a federal loan is involved, but the zone will no longer be a rating factor.
• “Grandfather" status disappears.
• Preferred Risk Policies (PRPs) will no longer exist.
• Elevation certificates will no longer be required. However, if there is premium benefit to supplying an elevation certificate, they can be used in ALL zones (not just “A" and “V" zones).
• If an elevation certificate is provided, there is no longer a requirement that it be completed by a licensed surveyor; the insured or the insured's representative can complete the elevation certificate.

These are not all the changes, just a few that differ greatly from the past. More information can be found on the Selective's Risk Rating 2.0 website.

Managing Interim Policies

Policies renewing between October 1, 2021, and March 31, 2022, may be eligible for either the legacy rating or Risk Rating 2.0 – depending on the carrier. Reportedly, each WYO carrier is managing the interim period in their own way.

Confer with all WYO carriers used within the agency to determine how each plan to manage this interim transition period. WYO carriers may:

• Automatically renew under the legacy rating system giving the insured the option to renew under the new rating program (allowing the insured to apply the more advantageous premium);
• Automatically renew applying the new Risk Rating 2.0 giving the insured the option to renew under the legacy rating system (allowing the insured to apply the more advantageous premium);  
• Give the insured the option to pick which rating scheme is used; or
• Transition to the new rating system without an option. 

When/if the Risk Rating 2.0 is used, FEMA rules stipulate the maximum premium increase from year to year. According to FEMA's Risk Rating 2.0 website, the premiums cannot increase more than 18% per year.

The WYO carrier must send out renewal information 45 days ahead of the renewal; once the agency knows how the carrier plans to manage the interim, be ready to discuss the options with the insured. Also, if the option exists to compare premiums (legacy vs. Risk Rating 2.0), give the insured the option.  

A recent question from a member addressed the agent's role during the transition period. Specifically, should the agency contact all current flood customers to notify them of the changes and the rating options?  

Although this is a seemingly simple question, there isn't a simple answer. Two issues or facts make this difficult to answer: 1) not all WYO carriers will follow the same procedure during this transition period; and 2) WYO carriers are required to send renewal notifications 45 days in advance.   

Renewal notification requirements fall on the WYO carrier; thus, the agent does not appear to have a duty to notify the insured. However, if the agency undertakes to notify flood clients renewing during this interim period separately from or in addition to the WYO carrier's notification, such notification should be somewhat generic. Any such notification must be factual and should likely be limited to certain facts:

• FEMA is changing flood rating procedures for all flood policies;
• All new flood policies written after October 1, 2021, are subject to these new procedures;
• Any flood policy renewing between October 1, 2021, and March 31, 2022, may be eligible for the more beneficial rating applying either the legacy rates or the new rates (depending on the carrier);
• All policies, new and renewal are subject to the new rating program effective April 1, 2022; and
• If the insured has any questions, they should contact the agency.

Variations in how carriers plan to manage this period requires limited detail because each client is somewhat unique. Notifying the client and giving them the option to contact the agency allows for a customized customer conversation.

Truth of Risk Rating 2.0

One truth of Risk Rating 2.0 - every flood policy/client must be touched in the coming year. Beyond the changes to the rating procedures, there are new discounts available that require supplemental information. Even if the agency chooses to not notify clients about the interim differences, every policy will require review during this total transition phase occurring over the next year and then regularly thereafter.

Moving Forward

Risk Rating 2.0 was developed to modernize flood rating by making better use of technology and historic information to judge a specific structure's true flood risk. With such specific information, more actuarially appropriate and customized premiums can and will be charged (yet phased in over time).

As part of this new world of flood rating, agents must be prepared to guide insureds through these changes. Although the interim transition period seems to be of immediate concern, the real preparation and focus should be the new rating procedures and factors.

Agents with a history of writing and rating flood insurance must learn a new process. The good news is, the policy language isn't changing, only the rating process and factors. 

End Note: A new rating option mentioned in this article involved the use of elevation certificates. Previously an elevation certificate was acceptable only when completed by a licensed surveyor. Under Risk Rating 2.0, the insured or “its representative" can complete the elevation certificate. The agent should NEVER be this representative. The agent should not undertake to complete an elevation certificate on behalf of the insured. 

Last updated: January 20, 2022