In what it calls a “transformational leap forward” and a correction of historic inequities, the Federal Emergency Management Agency is implementing a new pricing system through the National Flood Insurance Program .

It’s called Risk Rating 2.0and gone is the use of flood zones to determine a property’s risk, which has been the case since the 1970s. Instead, the new system includes a variety of factors, such as distance to water, altitude, frequency of flooding and cost of reconstruction.

The old methodology “inadvertently asked owners of lower-cost homes to subsidize flood insurance rates for those who lived in newer, more expensive homes. The old system was flawed and unfair,” wrote David Maurstad, who heads the NFIP. in an editorial. FEMA’s website explains that “because the Risk 2.0 rating takes reconstruction costs into account, FEMA can allocate premiums equally among all policyholders based on home value and unique flood risk. of a property”.

But the rollout has not been without controversy and concern.

We are in the first of two implementation phases. New policies starting October 1 of last year are subject to the new methodology, and existing policyholders who would see a reduction in their premiums could benefit from it on October 1. updated January 11FEMA said the NFIP has sold about 75,296 new contracts and policies since then.

Under Phase II, all other existing NFIP policies renewed on April 1 or later will be subject to the new methodology.

So what does this mean for insurance premiums? It is complicated.

This is the first time in the program’s history that some people — 23% of policyholders — will see a reduction in premiums. Rest, FEMA says 66% of policyholders will see an average increase of up to $10 per month, 7% will see an increase between $10 and $20 per month, and 4% will see increases of more than $20 per month.

By comparison, Maurstad said in 2020, the average increase in NFIP premiums was $8 per month, or 11.3%.

Last May, FEMA released breakdowns by department for the first year of implementation, showing that 33.7% of policyholders in New London County would see decreases and 50% would see increases of less than $10 per month.

In its January 11 update, FEMA provided numbers on the extremes for the first year: 4,108 Connecticut policyholders will see decreases of more than $100 per month, while 84 will see increases of more than $100. per month.

FEMA underwrites the NFIP, which homeowners can purchase through private insurance companies – although it is not confused with private insurance policies. NFIP policyholders can contact their insurance brokers to find out how Risk Rating 2.0 will impact them.

Always wait and see

Observers in Connecticut told the Connecticut Mirror in September, they were waiting to see the impact of the changes, and although Phase I has since started, they are still waiting.

“I haven’t heard anyone complain, but if you never had a policy and you had nothing to compare to, you probably wouldn’t be complaining,” said Diane Ifkovic, NFIP’s Connecticut coordinator. But she’s waiting to see what happens after April 1, and also noted that Phase II coincides with a time of year when a lot of people are buying homes.

She expects premiums to rise for people just outside the mapped floodplain who weren’t required to buy flood insurance for their mortgage, but did so voluntarily. FEMA says about 90% of voluntarily insured in single-family homes will see rate hikes, The Associated Press announced in december.

The change in methodology should not impact insurance companies, Ifkovic said. Unlike auto insurance, if you call three insurance companies through the National Flood Insurance Program, the rate should be the same.

New Haven-based realtor Michael Barbaro, president of the statewide Multiple Listing Service and former president of the Connecticut Association of Realtors, said he had “not heard stories horror at this point.” But he’s not sure what to attribute that to, given he sees historically low inventory in a fiercely competitive market, meaning people have a higher tolerance for higher costs.

“Is the lack of noise around this the result of low inventory (and) incredible market demand, or the success of the program?” He added: “For me, this is not a case of no news being good news; this is a case of no news being no news, so I’m really waiting to see how that plays out. will unfold.”

As a real estate agent, Barbaro said he always worries about unintended consequences and that “uncertainty is no friend of the real estate market.”

One thing that does not change are the legal limits which dictate that rates do not increase more than 18% per year on primary residences or 25% on secondary residences, which means it will take years to certain policies to achieve their new rates.

A bipartisan group of nine senators from New Jersey, Louisiana, Mississippi, Maryland, New York and Florida are sponsoring legislation this would limit, among other things, the annual increases to 9%. Sen. Bob Menendez, DN.J., introduced the National Flood Insurance Program Reauthorization and Reform Act in November, but it has not gone through since.

“This will put safeguards on FEMA’s new rating methodology, known as Risk Rating 2.0, and protect policyholders from sudden rate shocks while responsibly disclosing full flood risk,” read a Press release from the offices of Menendez and Sen. Chris Van Hollen, D-Md.

The same group of senators on September 22 wrote a letter to FEMA Administrator Deanne Criswell asking her “urgently” to delay Risk Assessment 2.0.

They said they were troubled by reports that nearly 80% of policyholders will see their premiums increase nationwide, and they understood that internal analysis shows that FEMA estimates that about 900,000 policyholders will drop out. the NFIP over the next 10 years “largely due to unaffordable premiums below the 2.0 risk rating.”

Criswell replied on February 10and stated that this internal study “was a pre-decisional financial model that was produced using pessimistic assumptions. FEMA expects NFIP participation to increase due to the 2.0 risk rating. are insured.

She said if FEMA further delays implementation of the 2.0 risk rating, “hundreds of thousands of single-family homeowners will continue to pay more than they should,” to the tune of $237 million in overpayments for a delay of six months.

Rising costs are nothing new

James O’Donnell, executive director of the Connecticut Institute for Resilience & Climate Adaptation, said “the role of federal flood insurance in decision-making on coastal adaptation issues is quite important,” and he thinks that people can make wiser decisions if they have to pay proportionately to their risk.

He noted that the 2.0 Risk Rating has been delayed several times and believes the full implications will not be clear for some time.

O’Donnell added that while we hear a lot about increased risk along the coastline, most flooding doesn’t happen along the coast, but inland. Similarly, Stonington Borough Superintendent Jeffrey Callahan said most flood insurance claims come from river properties, contrary to popular belief that the NFIP is just a “benefit for the elites who live on the coast”.

Callahan said more than a third of properties in the borough have flood insurance under the national program. It is one of 19 communities in the state that participate in the Community Rating System, a FEMA program that offers insurance discounts of 5% to 45% in exchange for activities around flood mitigation and education – and lots of paperwork. The borough did enough activity to get a 10% discount on resident policies through the NFIP.

Callahan was unfamiliar with the details of the Risk 2.0 rating. But the experience of those with flood insurance illustrates a point that FEMA has tried to make: It’s not like premium increases under Risk Rating 2.0 are a new reality, because premiums are increasing with the old methodology.

Callahan has had flood insurance since moving to the borough in 1992, and during that time has seen his premium increase nearly tenfold, from the original rate of $400 or $500 a year. Its policy is renewed in November, so it will not see any change from the 2.0 risk rating until the end of this year.

While most people obtain their flood insurance policies through the National Flood Insurance Program, some opt for private insurance policies to save money.

Living across from Rocky Neck State Park, Mary Hunter said she wasn’t in a flood zone when she bought her home in 2010, but after FEMA redid their maps since then. Her mortgage lender now requires her to have flood insurance, although she said only her patio is in the 500-year flood zone.

Hunter said she could fight the designation by getting an elevation survey, but it costs $1,800 and she can’t afford it. His NFIP policy was due for renewal in March and the increase would have been $100, bringing annual premiums to more than $1,200. Instead, she found a lower rate this month through a private insurance policy.

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