According to The Federal Emergency Management Agency (FEMA), flooding is the most common and most expensive natural disaster in the United States. During our era of extreme climate transformation, flood risks are more common than ever. Heavy rain and flash floods can hit almost any community and can be financially devastating to homeowners. In fact, FEMA estimates that just one inch of rain can cause up to $25,000 of damages to the average dwelling. And, as many homeowners already know, even when floodwaters don’t actually enter your home, seepage through basement walls during a flood event can cause significant loss.

Flood insurance can help individuals prepare for and recover from the potentially catastrophic impact of floods. In general, flood insurance is available through private carriers and through the National Flood Insurance Program (NFIP) which is managed by FEMA but available through private insurance agencies. Regardless of the market, many homeowners have considered the premiums for flood insurance difficult to understand and prohibitively expensive.

In today’s blog we will focus on flood insurance available through NFIP. In particular, we will explore why flood insurance is important, who needs it, how much it may cost, and the basics of FEMA’s new pricing methodology, called Risk Rating 2.0 and how it may benefit you. We’ll also look at what Risk Rating 2.0 means for those who already have an NFIP policy. For specific information about how to best protect your home and family against one of nature’s most dangerous weather events, call Eastern Insurance Group. We have a special team in place that focuses exclusively on flood risk management and will always be here to help you understand and manage your personal risk.

Why buy flood insurance?

Flood insurance covers buildings and personal property when you suffer a loss related to flooding. Most homeowner’s and renter’s insurance doesn’t cover flood damage, so policyholders must purchase flood coverage separately.

Who needs flood insurance?

If you live in a high-risk flood area and have a home that is backed by a federal mortgage, you are required to purchase flood insurance. But flood insurance is also a good idea for homeowners living almost anywhere. Weather patterns are increasingly unpredictable and according to FEMA research, more than 25% of NFIP claims originate outside of these high-risk zones. And while it may be tempting to think that federal disaster assistance will pay for flood damage, it’s important to know that only communities falling within a designated federal disaster area are eligible for FEMA assistance. And even in circumstances in which the acting U.S. president makes a disaster declaration, the average FEMA payout recently averaged about $5,000 per household, whereas the average flood insurance payout over a similarly calculated period was around $69,000.

Simply put, flood insurance provides better protection and larger payouts than FEMA is capable of delivering should you be damaged by one of these ever-increasing natural disasters.

How much does flood insurance cost?

FEMA estimates that the average annual premium for flood insurance in the United States has been $700 per year. For many homeowners, this was a non-trivial cost for protection against an event that may never materialize, even when weighed against the expense of rebuilding their home and replacing their belongs should they ultimately suffer a flood-related loss.

What is Risk Rating 2.0 and how does it affect premium pricing?

For the last 50 years, the premiums for flood insurance have been calculated using a “one-size-fits-all” methodology, meaning that rates were levied according to the particular flood zone in which your home is located. But now, with Risk Rating 2.0, premiums are calculated based on unique property risk. Some of the factors that now go into establishing risk include:

• Various types of flooding that may affect your home, such as riverine and flash flooding,
• The proximity of your home to potential sources of flooding, such as coast lines, lakes, or rivers,
• Foundation height and height of the lowest floor in relation to the base flood elevation, and
• The cost to rebuild or repair your home and replace your belongings

This new methodology for calculating risk is based on decades of FEMA’s data gathering, analysis, and technology-driven best practices. It is more accurate, transparent, and will create greater equity within communities. Thanks to Risk Rating 2.0, most people will experience a reduction in their flood insurance premiums. Why? Because people living in lower-valued homes will no longer be shouldering more than their fair share of risk simply because their homes are located in the same zone as those who live in higher-valued properties.  

What if I already have a flood insurance?

Homeowners who currently have an NFIP subsidized policy, also called a Preferred Risk Policy, as well as those who were carrying policies before the NFIP flood risk maps became effective will see their premiums move toward the full risk-based rate under Risk Rating 2.0. For those whose premiums may rise under these circumstances, the annual increase is currently capped at 18%.

Review your flood insurance options today

Whether they are caused by hurricanes, tornados, nor’easters, or other storm events, floods and water seepage that is the result of floods can be financially devastating to homeowners. The right insurance protection can bring peace of mind year-round and can protect you and your family should you experience damage due to a flood. A representative within Eastern Insurance Group’s dedicated team of flood insurance specialist will help you understand your personal flood risk and help provide you with a policy that right for you. Call today at 800-333-7234.