We're less than a month away from the first phase of the flood insurance changes coming to the Federal Emergency Management Agency (FEMA) and the National Flood Insurance Program (NFIP) through the new Risk Rating 2.0 program.

Will the NFIP Risk Rating 2.0 Kill the Real Estate Market?

October 1st marks the first massive change coming to federal flood insurance for homeowners across the United States in thirty years, and this also means that a lot of people will be affected outside of the flood industry.

Will the NFIP Risk Rating 2.0 program kill the real estate industry?

Understanding NFIP 2.0

The new program from the National Flood Insurance Program (NFIP) is sure to change the flow in the flood insurance industry overall as this will have a lot of changes that focus on individual flood risks. We've talked about this in our NFIP 2.0 Series per State and Counties, but we'd like to review it to further contextualize its impact on real estate.

Will the NFIP Risk Rating 2.0 Kill the Real Estate Market?

The biggest change coming to federal flood insurance is the scoring that comes into the flood risks per property. Simply put this "flood risk score" will take into multiple variables that accurately represent the flood risk of a property — regardless of it being residential or commercial property. This score will be based on some features that are staying and new features.

The remaining features are as follows:

The new things that will come with the Risk Rating 2.0 are as follows:

  • Types of flooding that your property experience. This can be either pluvial or the accumulated water due to rain, runoff; fluvial or river floods; or coastal which are due to storm surge or coastal erosion. Sometimes even a combination of these three.
  • First-floor height and elevation of the structure. A new feature that determines your flood risk score is the distance between the ground (grade) from your first floor or the first habitable floor of your property.
  • Flood Risk Mitigation Measures made on the property. Is the lowest floor above the base flood elevation? Are there enough flood openings to let floodwaters through?

So how will this impact the real estate industry and will Risk Rating 2.0 be able to completely kill off sales for real estate agents?

The Real Estate Impacts

As you would notice, we immediately mentioned that flood insurance will no longer be rated based on the flood zone. Simply put, this will only determine whether or not a property will be required to process a mandatory flood insurance purchase based on its flood zone.

For everyone's information, if you're in a high-risk area like flood zone A, flood zone AE, or flood zone V, your mortgage will be sure to require you to get flood insurance.

This is due to the regulation set by FEMA and the NFIP for every property. Mortgage-wise this is to best protect their assets which is the structure of the building itself and ensure that reselling it will be a smooth breeze.

Flood Zone for All

At the current program, flood zones directly impact your flood insurance premiums as well. People who are in the high-risk flood zones get significantly higher rates than low-risk zones (like Flood Zone X). This also means that if you're paying for $1000 flood insurance, that's an additional $30,000 on a 30-year mortgage.

Most of the time, you can hear from agents or mortgage lenders that you're not in a flood zone when you're just in a low-risk flood zone. They really don't mention this until an escrow because low-risk zones aren't required to get flood insurance. High-risk areas, on the other hand, will immediately get notified about their mandatory flood insurance requirement by the mortgage company.

It's factual that both of these properties can get flooded equally given the right circumstances like Hurricane Katrina and Hurricane Ida recently.

With the Risk Rating 2.0, this "not in a flood zone" misconception in flood insurance from property owners, agents, and lenders alike will be eliminated since each property will have its individual risk of flooding. Basically, all properties will experience flood one way or the other regardless of the flood zone.

This type of change is the first blow to the real estate market since it might discourage a lot of property owners to buy a property. It comes down to the question "will I be able to resell my house?" when all properties have flood risks.

Mortgage and Flood Insurance Policies

When it comes to sales of properties, one of the biggest concerns for buyers is affordability especially when you put in that mortgage, homeowner's insurance, and flood insurance. With the Risk Rating 2.0, the goal is to make more people be aware of their actual risk and convince them to secure flood policies for their homes.

When you take a mortgage out on a home, you'll have a secret escrow in form of these insurance policies. This means that moving into a new property will also get you a possibly more expensive loan and payment each month since you will get a more accurate representation of the flood coverage due to your risks.

Will the NFIP Risk Rating 2.0 Kill the Real Estate Market?

It's important to remember that when you have a flood insurance policy in place, it will be a separate payment from the homeowner's insurance or the mortgage loan per month. The thing is, you can't really escape floods as we've seen with Hurricane Ida in New York, so getting flood insurance is a must to protect your personal property or contents as well as your entire home.

This might cause an effect where people will rather do measures to better protect their own house instead of buying a new one. The chance of people having cheaper homes to get more security when it comes to floods might also go up.

Best Steps Forward

The real estate won't absolutely be killed off by the new Risk Rating 2.0 program since a lot of people will still buy or sell houses. However, it's more likely that the industry will either have to strategize with this new program or get massively hurt by it.

At the end of the day, this new program isn't just for the sake of creating more problems other than the threat of being in a flood plain or waters rushing to inundate your property. This is equity in action for a reason since flood insurance is somewhat getting ignored to the point that it becomes detrimental to one's investments and homes.

We've seen how Hurricane Ida showed that flood zones aren't really the safeguard from flooding since water will never know where and when to stop. New York saw a lot of homeowners clueless on the steps forward to recover from the damages.

The best thing to do is to really think hard about selling or buying a house since it will also include flood insurance one way or the other. Regardless of flood zones, every home will get to see their flood risks and the scores won't be zero.

If you have questions on how to best approach real estate with the Risk Rating 2.0, how to get flood insurance, and how to see your flood risk scores even before the new program kicks in, click below to reach us.

Get Your Flood Risk Score Here!

Buy Flood Insurance Now!

Remember, we have an educational background in flood mitigation which lets us help you understand your flood insurance, your flood insurance, and mitigating your property long-term.

When it comes to insurance policies, these things involve a lot of commitment and hard-earned cash from everyone, so people are starting to become more careful with it.

Today, we want to talk about the three reasons why people across the United States don't buy flood insurance and understand why you should avoid this type of thinking.

Not in a Flood Zone

The first reason we always hear that comes from not just property owners, but also mortgage lenders and insurance agents. This is a common misconception in the flood insurance industry which we've covered in our previous blog.

When a mortgage company tells you that you're not in a flood zone, this doesn't really mean that you won't get flooded instead it simply means that your property is no longer in a high-risk flood area or high-risk flood zone like a flood zone A.

A lot of people think that they're not in a flood zone, so they don't need flood insurance however this isn't really the case. When your mortgage company or insurance agent tells you that you're not in a flood zone hence you don't need flood insurance, this doesn't mean that you're not going to be flooded.

It's important to note that when you're not required to carry flood insurance is due to the fact that maybe your house sits on or was moved into a low-risk area. Now, when it comes to the time that a flood event happens, these low-risk flood zones have less likelihood to get properties inundated with water.

We've seen this happen with New York where a lot of people couldn't find coverage for the flood damage that was brought by Hurricane Ida. The thinking that only high-risk areas need to have flood insurance is a big hoax in the industry since there's individual flood risk for each property.

This is why a flood map or flood insurance rate map would show you in a flood zone regardless. This requirements of when to get flood insurance based purely on flood zones are creating a bigger disaster than the water itself.

This isn't an exception from the damages, however. This brings us to the second reason.

Flood Risks

A lot of low-risk areas get inundated with water even after a storm or heavy rainfalls in other zones because there's a chance that the excess flood water will flow into these low-lying communities. You also have to consider that certain development disrupts the natural pathways of water and causes only 10% of the water to go into the ground.

This second reason will be coming from people who know that they're in a low-risk flood zone, but underestimates the damages that flooding can bring to their doors. It's important to note that these flood zones determine how much flood that your property might get. This doesn't indicate how severe the impact may be as flood damage varies depending on the circumstances.

3 Reasons Why People Don't Buy Flood Insurance

A rapid flash flood can cause more damages than standing water that's inundated your home. This also means that it's very much possible to have the same flood impact regardless if you're in low-risk or high-risk areas.

According to Wharton School as cited by Zurich, in New York, eighty percent (80%) of residential property didn't have flood insurance and ninety percent (90%)  of business or commercial property also didn't have any sort of protection from the flooding during Hurricane Sandy. This shows how much property and business owners disregard the opportunity to get protected through a flood insurance policy.

Homeowner's Insurance Policy

Lastly, we have another common misconception when it comes to insurance, flood coverage, and more. When it comes to this part, it's important to understand that your homeowner's policy doesn't really cover any damages from flooding. A lot of people think that flood coverage can be attached to your homeowner's insurance once you secure a policy for the structures in your home.

Flood insurance is a separate entity when it comes to insurance coverage. Yes, this will still get you coverages for the damages on the insured building that's been inundated with water. So let's take a few steps back and understand what's covered by your homeowner's insurance and your flood policy.

Now, when it comes to damages any type of water damage that impacts your home will be covered in the policy jacket of your homeowner's policy. This is because when it comes to floods, there's what we call the "Number Two Rule" set by the federal government through the Federal Emergency Management Agency (FEMA) and the National Flood Insurance Program (NFIP).

This rule determines if you need to file a claim to your homeowner's insurance company or through flood insurance, be it FEMA or the private flood insurance market. According to the rule, it will only be considered as flood damage and will be covered by your flood policy if it qualifies for either one of the two conditions. A flood will only be considered as a flood if:

  1. At least two (2) acres have been inundated with water - This means that if standing water starts to impact a community, it will only be considered as a flood if there are at least two acres of land are impacted and, basically, is underwater due to excess water from rain, storm, runoff, melting ice/snow, or any type of natural disaster.

  2. At least two (2) properties have been inundated with water - This means that any type of two properties; house, business, or park, for example, have to be inundated or impacted by floodwater that comes due to the aforementioned reasons. In order to qualify for a flood insurance claim, one of these two properties must be your insurance building.

This can be a very frustrating experience if you don't know when you can file a flood claim for the damages. There's also a chance that you were flooded and reach out to your homeowner's insurance provider only to be rejected and left with nothing.

At the end of the day, it's always best to find security through a flood policy. This is the only way back up when all that water starts to destroy your home, the buildings you have and all their contents, and important personal property.

If you have any questions about flood risks, how to get flood insurance through FEMA, NFIP, or the private market, or anything about floods, reach out to us by clicking below.

Get Your Flood Risk Score Here!

Buy Flood Insurance Now!

Remember, we have an educational background in flood mitigation which lets us help you understand flood risks, your flood insurance, and mitigating your property long-term.

Today, we want to talk about the mortgage requirements when it comes to flood insurance, especially during flood disasters. Now, it's important to preface this that we aren't pointing out a certain mortgage lender but more on the general requirements, conditions, and things like that.

Are Mortgage Requirements Causing Larger Disasters in Flood Insurance?

We want to close this case by asking "are these mortgage requirements creating more disasters than the flood itself?

Property Coverage

There are countless times during this type of disaster, there are property owners who would say that they got everything covered for their property and buildings for business owners. In these cases, a lot of people would also refrain from buying flood insurance because the mortgage doesn't require it since they're not in the flood zone.

When flooding strikes or any other natural disasters, these buildings will become a liability for these homeowners because the flood damage isn't covered by their homeowner's policy. For the nth time around, we want to emphasize that flood insurance is a separate policy, and flood damage is only covered by flood insurance policies.

This type of flood insurance requirement has been in the industry since day one, and what we want to find out is if this type of standard is causing a bigger disaster; "standard" being that any property in high-risk areas when it comes to flood insurance rate maps (FIRM) are required to buy a flood policy whereas those in low-risk zones aren't really required to buy one.

Hurricane Ida

Now, this issue is the same thing that we're seeing happen in New York as a state where a lot of property owners are leaning on their mortgage company to decide whether they need flood insurance or not, but as we've seen, what happened in New York is not a flood zone problem.

READ MORE: New York Flooding: Not a Flood Zone Problem, A Flood Risk Problem

There are also cases where the flood insurance coverage follows the loan limits which is a much worse case since you do get covered for the damages, but that won't really bring you back to speed with things, and most of the time, this can still cause a substantial financial burden for you. All those repairs to fully cover your property — both building and personal property — are at your financial expense.

So how can you prevent this type of issue become an experience when flooding happens in your area?

80% Rule

First, we want to address the 80% rule when it comes to the National Flood Insurance Program (NFIP) under the government and the Federal Emergency Management Agency (FEMA) and even in the private flood market. 

What this rule entails, especially with the National Flood Insurance Program (NFIP), is that you should either have an 80% replacement cost for your property, $250,000, or whichever one is higher. This can also have the property default to actual cash value (ACV) which means you can only get $50,000 for a $250,000 property. We see this every day when it comes to flood insurance policies with the NFIP.

The same goes for private insurance carriers where you either go for 80% of the property cost or it drops down to ACV. This is indeed creating a bigger disaster when it comes to flooding since you only rely on flood zones to get a standard flood insurance policy to cover your home. 

If you have any questions on how to make sure that you have enough coverage, where to get flood insurance, or anything about floods, click below to reach us.

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Buy Flood Insurance Now!

Remember, we have an educational background in flood mitigation which lets us help you understand flood risks, your flood insurance, and mitigating your property long-term.

The Federal Emergency Management Agency (FEMA) is rolling out changes when it comes to flood insurance rates across all states in the country. Today, we will unpack these changes coming to the U.S. Virgin Islands and how they can impact your flood insurance in the future.

The Flood Insurance Guru | U.S. Virgin Islands Flood Insurance: New Risk Rating 2.0

In this blog, we'll talk about the U.S. Virgin Islands, a neighboring island of Puerto Rico. Now, we've already established how this area and being an island can really break you when you're hit with those hurricanes and coastal storms. In fact, The State recently covered how the 2017 flooding left residents in shambles and still waiting for disaster relief. This type of event can really make it difficult for people to find protection from the uncontrollable forces of nature.

Today, we want to talk about the National Flood Insurance Program's (NFIP) upcoming changes to flood insurance rates through the Risk Rating 2.0. This new update will arrive on October 1, 2021, and is expected to impact about 1,400 policies in the U.S. Virgin Islands.

The NFIP 2.0

The Flood Insurance Guru | U.S. Virgin Islands Flood Insurance: New Risk Rating 2.0

The Risk Rating 2.0, or commonly known as NFIP 2.0 as well, is more of a move of equity. This update on the federal flood insurance program itself will allow you to no longer pay more than your fair share when it comes to premiums as this would now be based on the value of your property or home starting this October. 

It's important to note that this doesn't mean that the National Flood Insurance Program will immediately send out rate increase for people who have higher-valued homes or maybe an expensive property and that lower-valued homes in the U.S. Virgin Islands will immediate get a decrease on flood insurance premiums. FEMA considers a lot of things before finalizing your flood insurance policy and premium, so this doesn't really mean that a cheaper home means that you won't get premium increases.

You also want to consider the following things:

  • Overall flood risk, floodplain devolvement, and flood frequency in the communities
  • History of flood damage and flood loss (also falls under the flood damage assessments by FEMA)
  • History of the flood claim made in the last ten years. Was there more than one payment of claims made in the last ten years?
  • Mitigation efforts on the property. Does the insured property have enough flood openings? Is the lowest floor above the base flood elevation?
  • Flood map designation. Is the property in a high-risk flood zone (flood-prone areas) or a low-risk flood zone

It's important to note that insurers from both the federal government and private market do a lot of research and consideration before finalizing your policy and premium rates. These things can significantly help you to also understand the actual risk you might be facing when it comes to flood. When you're directly sitting close to the gulf coasts or the Atlantic coast, you're also facing a lot of flood risk that comes in the form of risk from storm surge and hurricane season.

When it comes to the rate changes happening across the country, you're going to see these colors in ranges which represent these changes with flood insurance rates from FEMA. Now, each of these colors represents the good, the bad, and the ugly changes coming to each state. In this blog, we'll cover the following things:

  • What are the impacts?
  • The good, the bad, and the ugly change.
  • Who will be impacted?
  • When will these changes happen?

The Flood Insurance Guru | U.S. Virgin Islands Flood Insurance: New Risk Rating 2.0

The Good

Let's sail off this Risk Rating 2.0 changes with the good things happening to the residents of the Virgin Islands of the United States. We'll show this as the green portion on the graph.

The good change coming with this is because you're going to get an immediate decrease of up to more than $100 (>$1200 per year) on flood insurance rates with FEMA once the Risk Rating 2.0 kicks in. This is expected to impact most of the residents of the islands, covering about 93% or 1,311 of the policies there.

The Bad

When it comes to bad changes, we'll show this as the blue portion of the graph. This is one of the highlights of today's blog since the ratio between the good and the bad changes generally has the blue overpowering the green. Not in this case though.

The bad change is expected to be experienced by 6% or 89 policies. This means that if you're part of this portion, you can expect a small increase in your flood insurance rates with FEMA and the NFIP. The increase ranges from $0 to $10 per month ($0 - $120 per year).

Generally, this means that you might not even experience a change in your rates when the Risk Rating 2.0 kicks in since you'll be sitting with that $0 per month change.

The Ugly

Finally, we also want to talk about the last percentage you'll see with these updates coming to the Virgin Islands. We'll show this as the pink and grey portions which will still cause an increase in flood insurance rates however with a more significant amount. Let's break these two down.

The pink portion will cover 1% or about 7 policyholders. If you're one of these lucky people, you can expect an increase in your flood insurance rates with FEMA that ranges from $10 to $20 per month ($120 - $240 per year).

The grey portion on the other hand will cover less than 1% or about 4 policies here. However, despite having the smallest portion in these updates across the United States, the grey portion still packs a punch.

The increase in flood insurance rates will now be more than $20 per month (>$240 per year). This may mean that you might start seeing an increase that sits around $100 per month ($1200 per year) or maybe more once the Risk Rating 2.0 starts.

You can see the full graph of these changes below:

The Flood Insurance Guru | U.S. Virgin Islands Flood Insurance: New Risk Rating 2.0

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.

So, you want to be very ready for this. We've been talking about this since last year since basically the NFIP is already 30 years old already and is in need of this change. Some would even say that the current NFIP ways are already outdated which really begs for this Risk Rating 2.0 to happen.

If you have questions on these upcoming changes, what are your flood insurance options in the Virgin Islands, 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.

The Flood Insurance Guru | 2054514294   The Flood Insurance Guru | Chris Greene | YouTube    Get Your Quote from Flood Insurance Guru

Many people understandably stop getting flood insurance since they're in a low-risk flood zone however as we've learned in the past, this doesn't really mean a no-risk flood area. Due to this, many mortgage lenders will require you to have a flood insurance policy for your property. 

The Flood Insurance Guru | Blog | What's the Penalty of No Flood Insurance?

Let's talk about what are the impacts on your mortgage payment or escrow account when you don't have flood insurance? What responsibilities do mortgage companies or lenders have to force-place a policy or coverage for my house?

Penalties of No Flood Insurance

First, let's talk about the possible penalties you may take place if you're required to get a flood insurance policy for your building.

The Biggert-Waters Flood Insurance Reform Act enacted penalties for flood violations of $2000 with no aggregate limit. The civil money penalties (CMP) will be included upon violation of either not being able to purchase adequate flood insurance, properly force placing flood insurance, providing notification on the availability of flood insurance, and proper escrow for premiums.

The Flood Insurance Guru | Blog | What's the Penalty of No Flood Insurance?

Now, for high-risk flood zones or the Special Flood Hazard Area (SFHA), a flood insurance policy is a must as per the regulations of the Federal Emergency Management Agency (FEMA). If you're doing a federal loan, it's most likely that your mortgage lender is managed by the government, so you may be able to easily get a flood insurance policy in place from FEMA and the National Flood Insurance Program. It's also most likely that your mortgage lender is going to be the one to immediately require you to have flood insurance for the building.

Mortgage Company and Escrow Account

Now, it's important to note that if your mortgage lender, lending institution, or the bank increases, extends, or renews a loan secured by a residential property, you're going to expect them to be required to escrow all premiums and fees for the flood insurance. This is unless the bank or the type of loan qualifies for an exception to the escrow requirement.

Escrow accounts generally get impacted by flood insurance however this doesn't give you a heads up in real-time or immediately. Many times, residents don't think that they're going to be impacted until six months later when they start to receive this massive bill that's been backdated several months.

Escrows are reviewed annually and are based on when your loan is made. Simply put, the month of your review depends on the date of the purchase of your house. This is important because if you decide to change flood insurance companies before your annual review, it won't be reviewed until the set month. For example, if you bought a house in November and decide to change your flood insurance company in February, it won't be reviewed until November. This can be very surprising and can really hurt you in the long run.

Picture this, you moved into another flood insurance provider and this was an increase on your mortgage for $400 per month. This can mean that the time between the change and your annual review, you might be collecting a huge sum of money that you only get to find out that you need to pay to catch up to your escrow several months after.

How can you avoid this? Reach out to your mortgage company, provide some form of notice to your bank, review the term on your loan, and make sure that there's a second review done considering the adjustments, or more simply get the flood insurance on your own. 

Force-Placed Flood Insurance

There will be times that your mortgage company, lending institutions, and the bank will do everything to make sure that the property will be insured against flood damage. This may lead them to force place a flood insurance policy on your property. Now, this may sound like a good thing since you won't have to do the nitty-gritty of applying for a policy from the federal flood insurance or private flood insurance market. However, this is generally a bad thing since you lose a lot of flood insurance purchase benefits.

It's equally important because maybe you're in a low-risk flood zone where flood insurance is available but isn't required by the federal government on floodplain regulations, the mortgage lender can actually decide on your behalf.

This is why we really encourage that regardless of your flood zone — be it preferred zones or special flood hazard zones — you still should start to purchase flood insurance from either the National Flood Insurance Program or the private flood insurance. Not only to protect your building and contents but also to make sure that you won't get flood insurance flood-placed on your property by your lender. 

The Flood Insurance Guru | Blog | What's the Penalty of No Flood Insurance?

It's important to note that force-placed policies aren't automatically under FEMA and the federal flood insurance or your preferred private insurance company. The only time that FEMA will be providing you flood insurance coverage and handling your flood claims is if the mortgage lender and/or loan works with the federal government. Most of the time, the insurer is the mortgage lender themselves. What does this mean for you?

Well, if the policy is force-placed, you can expect that the flood insurance premium to be expensive and you really don't have a say on it. Most of the time, the flood insurance coverage on these force-placed policies will just be for the building. This means that you're going to lose a lot on your personal property since the contents aren't really covered.

Getting Your Flood Insurance

This is a good thing about doing your own purchase of flood policy. You get to receive adequate coverage for both your building, be it residential buildings or commercial buildings, and everything it in. The National Flood Insurance Program provides both building coverage and personal property or contents coverage of $250,000 and $100,000 respectively.

The Flood Insurance Guru | Blog | What's the Penalty of No Flood Insurance?

When it comes to private insurers, you may get coverage from their private flood insurance policies for additional living expenses, contents and building replacement costs, and loss of use. These are simply additional coverage from the standard coverage they provide for buildings and items or personal property coverage. 

The Flood Insurance Guru | Blog | What's the Penalty of No Flood Insurance?

Another bad thing about a force-placed flood insurance policy is that they aren't transferrable. Generally, the National Flood Insurance Program will allow a property owner to do a policy transfer and policy assumption when selling a house. When it comes to the force-placed policy since the flood policy was made with your loan, then once you sell the house the policy won't stay on the house, but you're going to have to carry it with your loan.

If you have questions on how a mortgage lender work, how to avoid getting force-placed policies, getting the choice to pick your flood insurer, special flood hazard areas, or anything about flood insurance, please reach out to us.

Remember, we have an educational background in flood mitigation and we want to share this knowledge with you. Click the links below to get started, so you too can be prepared when crap happens.

The Flood Insurance Guru | 2054514294    The Flood Insurance Guru | Chris Greene | YouTube    Get Your Quote from Flood Insurance Guru