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!

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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.

As we start a new decade and enter Spring 2021, let's look into the differences between FEMA's National Flood Insurance Program and Private Insurance Company's Flood Insurance. It's important to note that both flood insurance companies have significantly improved in reducing the risk of flooding and flood damage through different means as they continuously look to providing the best for homeowners. We'll go over their respective flood insurance rates, their coverages, pros, cons, and unique benefits.

The Flood Insurance Guru | National Flood Insurance Program vs Private Flood 2021

National Flood Insurance Program

What is the NFIP?

As you'd know, the National Flood Insurance Program (NFIP) is under the Federal Emergency Management Agency (FEMA) which is backed by the federal government. Come October this year, we're expecting the NFIP and Federal Emergency Management Agency (FEMA) to drop the Risk Rating 2.0. The new risk rating apparently aims to lower the flood insurance premiums for their policyholders. This can show an immediate decrease of an average of $86 per month for 23% of their current policyholders. For the remaining percentage of policyholders, you can expect an increase to the flood insurance premium of up to $20 or more per month.

The Flood Insurance Guru | National Flood Insurance Program vs Private Flood 2021

Coverages

Coverage in the National Flood Insurance Program (NFIP) didn't change much. You'll get a max of $250,000 in property or building coverage if you're doing a residential policy and up to $500,000 for commercial buildings. There's also a $100,000 flood coverage for contents. This won't cover replacement costs, additional living expenses, and loss of use. You may also be able to apply for Increased Cost of Compliance coverage which will grant you an extra of up to $30,000 for flood mitigation on your property and reducing flood risks, but this coverage follows strict conditions to be eligible so it's not really a part of your standard flood insurance coverage.

The Flood Insurance Guru | National Flood Insurance Program vs Private Flood 2021

Another thing to expect with the National Flood Insurance Program purchase is their waiting period. It's important to note that this hasn't changed as the purchase of flood policy will still follow the waiting period of 30 days. This can be good or bad depending on the situation.

This waiting period can be the time you're preparing to commit to the flood insurance policy from the federal government, talk to your mortgage lender, and make sure you have the correct coverage for you, regardless if it's residential flood insurance or for commercial properties. Within this time as well, there might be flooding or your community experienced a devastating flood, and you're still on the waiting period. This can really hurt you. 

The Flood Insurance Guru | National Flood Insurance Program vs Private Flood 2021

The best thing about the National Flood Insurance Program is that they won't pick the risks. Generally, FEMA and NFIP cover all types of risks regardless of the flood zone, frequency of flood, and flood damage.

Private Flood Insurance Market

What is Private Flood?

When it comes to the other side of the coin, you have private insurance companies to help you with your insurance policy against flood damage. Now, it's important to note that private flood insurance is generally provided by different private companies like Lloyds of London, TypTap Flood Insurance, and Zurich Residential Private Flood Insurance to name a few. This means that you're not really locked into one provider and you have more options within the private flood itself.

The Flood Insurance Guru | National Flood Insurance Program vs Private Flood 2021

Coverages

Flood insurance coverage in private flood doesn't really have a maxed amount, unlike the NFIP. This generally means that you can get full coverage for your property or building if it's worth more than $250,000. We generally recommend homeowners with expensive houses or commercial properties to go with a private flood market since you're most likely to have a property that's worth more than $250,000. This is generally the downside with the NFIP flood insurance since they maxed out at a certain amount, so if your property is worth more than what they cover, you're going to get a downgrade altogether.

The Flood Insurance Guru | National Flood Insurance Program vs Private Flood 2021

Property coverage can go up to $10,000,000 if you want to and personal property coverage or contents can go up to $1,000,000. This generally depends on your property's values. Another important thing to discuss on private flood coverage is that these private insurers will provide replacement costs and additional living expenses or loss of use.

Private flood insurance also has an average premium that's significantly lower compared to federal flood insurance. This is why when it comes to options, private flood insurance might be the cheapest flood insurance anyone can get. Despite being the more affordable flood insurance, these private companies get to choose their risks which means that high-risk areas and special flood hazard areas might have a shortage of private flood options, if not nothing at all. If you'd observe, low-risk areas or preferred areas have more policies in force and more available options when it comes to flood insurance.

The Flood Insurance Guru | National Flood Insurance Program vs Private Flood 2021

Looking at 2021 so far, there might be some parts across the United States where private flood insurance providers are starting to stray away from. If this is the case, you can still go through the National Flood Insurance Program however you're only going to get what flood insurance coverage they will offer.

Flood maps show how much flood has changed for the worse the past few years. In this Spring season, it's best to secure a policy since this is one of the seasons where flash flooding can happen anytime. It isn't a big deal where you're getting your flood insurance from, but it is important to make sure that you have the right coverages, be it from NFIP flood insurance or private flood policy.

The Flood Insurance Guru | National Flood Insurance Program vs Private Flood 2021

Remember, we have an educational background in flood mitigation and we want to help property owners like you in becoming more educated and aware when it comes to flood. If you have any questions about the private flood insurers, flood premiums, flood insurance options, moving into private market flood insurance policy, or anything about flood, please feel free to reach out to us. You can also check our YouTube channel for our daily flood education videos, so you to can be prepared when crap happens.

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

So you are getting ready for work in the morning and you look in the mirror.

What do you see?

You see yourself

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That might make you happy or it might not. Thats a different discussion for a different day.

Flood insurance mirrored policies work the same way. They have to resemble each other.

So in today's blog we want to answer a three questions

  1. What is a mirrored flood insurance policy
  2. How does it protect you?
  3. What is not included?

A mirrored flood insurance policy has to do with private flood insurance policies. We are talking about admitted companies and non admitted companies.

The video below explains what the difference is with these companies.

 

This is generally a private flood insurance policy that has to have the same parts as a standard flood policy with the National Flood Insurance Program. A few of the things we are talking about are listed below.

  1. Coverages just as broad
  2. Cancellation notice of 45 days
  3. Lawsuit period the same

So how does this mirroring protect you as a property owner?

It creates consistency when it comes to coverages and even when claims are paid out. After a claim is not the time to find out you don't have the right coverage or verbiage in your flood insurance policy.

So if you decide to go with one of these private companies it makes sure that it meets the banks requirements.

So what is not included in this mirroring. While this requirement does provide some consistency on the guidelines that must be followed, price is not one of them.

Price might be one of the biggest differences between these policies. While National Flood Insurance Program policies should be the same price no matter where you go, the same can not be said for private companies.

We have seen a big difference in pricing with private companies. Just this morning we had a customer in Johnson City Tennessee who got a $3000 flood insurance quote from one carrier but we were able to get him another option less than $1500.

So when you are looking at these options you want to think about that. Make sure to get at least 3 different private flood insurance options.

Want to know what your flood insurance options are available in areas like Johnson city Tennessee? Click here

Maybe you want to learn more about flood insurance or flood education then check out our YouTube channel.

Remember we have an educational background in flood mitigation. So we are here to help you understand your flood risks, flood insurance, and mitigating your property longer term.

 

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