We've already completed the first part of this big series on the upcoming changes to federal flood insurance. We have covered each state however that only gives a small idea of the changes coming. In this new series for Risk Rating 2.0, we want to cover the National Flood Insurance Program's (NFIP) changes to communities in each state.
What is the Risk Rating 2.0
This is what FEMA calls equity in action when it comes to making the cost of flood insurance policies fairer per policyholder. This simply means that when it comes to flood insurance rates, a lot of things will start to change with the NFIP and FEMA. Generally, this is because property values for each individual property will be accounted for when finalizing your quote and flood insurance premiums with the National Flood Insurance Program (NFIP).
It's important to note, however, that this won't mean that the cheapest flood insurance will go automatically to lower-valued homes. It's equally important that we take into account, just like FEMA does and the private flood insurance industry, what's called flood risk variables which includes, but is not limited to the following:
- Designation in the flood zone maps.
- History of flood incidents, flood damage, and flood loss
- Flood claims made with the property
- Flood hazard, flood plain devolvement, and impact of flooding
- Risk of flood in the area, the chance of flooding, and flood frequency
- Mitigation efforts made on the property. Is the lowest floor above the base flood elevation? Are there enough flood openings to let flood waters through?
Let's have a quick look back on the federal flood insurance scene which is specifically what's called the National Flood Insurance Program. Let's go through what the NFIP is and why the Risk Rating 2.0 is happening.
The National Flood Insurance Program (NFIP) flood insurance cover both damages to the building and contents. When we say building, this generally pertains to a residential property or a commercial structure that gets flood coverage that maxes out to $250,000 (up to $500,000 for commercial flood policies only). At the same time, you'll also find contents coverage of $100,000 or the personal property you have listed with the insured building. They have been providing billions of dollars in flood claims across the state.
The ICC is an additional $30,000 flood coverage to give way for flood mitigation efforts for the insured property to avoid massive losses from a future flood event. The CRS on the other hand is a community-based rating system that measures the overall flood mitigation efforts made by the community in general; basically, this means that the higher your CRS score is, the bigger the discount.
Now, it's important to remember that the NFIP was established by the federal government under FEMA in 1968. Some parts changed when it comes to how the program works however the last major changes and updates that the NFIP got were from 30 years ago. This is where the Risk Rating 2.0 comes in.
Now that we've covered the NFIP and the Risk Rating 2.0, let's talk about its impact on Mobile County and its seat, Mobile City. We'll cover the good, the bad, and the ugly changes coming to the residents of the city.
We want to cover the good things coming to Mobile, Alabama first. We'll divide these good changes into two to specify the changes coming to flood insurance rates. This good change will bring an immediate decrease in the premium rates of those impacted. About 20.4% or 1,629 of the policies in the city will get impacted by this change.
The first half will impact about 10.6% or 842 policies will be getting a decrease that ranges from $0, which means there'll be no change at all, to $50 per month ($0 - $600 per year). The other half of this good change impacts 9.9% or 781 policies which will get a better deal since the decrease ranges from $50 to more than $100 per month ($600-$1200 per year).
This decrease can help a lot of people who might not want to risk the private sector holding back on their services. Generally, since the private flood insurance companies aren't bound by the government's red tapes, they can easily move out of an area once the risk of flooding becomes too uncomfortable for them.
Now, let's move into the bad news and bad changes that the Risk Rating 2.0 will bring to residents of Mobile in Alabama. A whopping 65.2% or 5,197 policies in force from FEMA will get an increase ranging from $0 to $10 per month ($0 - $120 per year). This is drastically smaller compared to other major cities we'll cover across this series.
You may want to prepare for these premium rate increases with this new Risk Rating considering how this portion of bad changes generally covers the bigger chunk of these changes.
This is why it's so important to understand these changes because you want to get the most out of your investment in flood policies when in proportion to the flood insurance coverage you'll get. Nobody would want to pay a higher amount, only to get covered for only $250,000 in a $500,000 home.
There are also ugly changes coming however this will only impact one policy in the city. It's important to note that these changes will be escalating as we move further in the range, meaning there's the ugly, the uglier, and the ugliest change impacting about 1,142 or about 14.2% of the policies that FEMA has in Mobile.
First, we have to cover the ugly change. This will impact 8.4% or 672 policies that will get an increase of about $10 to $20 per month ($120 to $240 per year) on that flood insurance policy's price when it comes to premium rates from FEMA.
Now, there's still that uglier change which will be bringing an increase that ranges from $20 to $50 per month ($240 to $600 per year). This will impact 395 policies in the city (5%) once the Risk Rating 2.0 update kicks in these policyholders' flood insurance.
Lastly, there's the ugliest change which is mainly due to the drastic increase it will bring to policyholders covered under this umbrella. We're talking about an increase that ranges from $50 to more than $100 per month ($600 to $1200 per year on premium rates) and will affect about 0.9% or 75 policies in the city.
This type of change can really hurt anyone's financial stability especially when we're talking about those who already find it hard to keep up with their flood insurance premiums. This is why we also recommend either prepare for these changes way ahead of time or prepare for moving into a different flood insurance company from the private flood insurance market.
When Will It Happen?
Now, the date when you can adopt this program really depends if you're doing a renewal or if it's a new business policy. You see, you can expect these changes to start on October 1st and you're going to adapt to these rate changes if you're buying flood insurance from FEMA on or after that date.
On the other hand, if you're doing a renewal with FEMA after that date then you don't have to take in these new rate changes until April 1st, 2022, or the date of your upcoming policy renewal.
If you have questions on these upcoming changes, what are your flood insurance options in Alabama, or anything about flood, reach out to us through the links below. You can also watch this on our YouTube channel.
Remember, we have an educational background in flood mitigation and we want to help you understand flood risks through education and awareness in flood insurance and preparedness.