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.

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 Virginia and how they can impact your flood insurance in the future.

The Flood Insurance Guru | Virginia Insurance: New Federal Flood Insurance Risk Rating 2.0

Virginia has one interesting history when it comes to flood events. You will be able to see that most of these floodings happen due to hurricanes. In fact, more recently, the Northern parts of the state are facing threats of flash floods due to 9 inches of rain being dumped by the low-pressure systems blanketing the state.

Let's talk about the upcoming changes to flood insurance in Virginia, the Mother of States.

The National Flood Insurance Program (NFIP) is bound to change its rating system for the people they provide flood policies to. These changes will be a big part of the Risk Rating 2.0 that's going to start impacting the federal flood insurance landscape on October 1, 2021.

We will understand what the Risk Rating 2.0 changes can mean to flood insurance and answer:

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

 

The NFIP 2.0

The Flood Insurance Guru | Virginia Insurance: New Federal Flood Insurance 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. 

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.

The Flood Insurance Guru | Virginia Insurance: New Federal Flood Insurance Risk Rating 2.0

The Good

Starting off with the good things, Virginia locals who have flood policies with FEMA and the NFIP will be experiencing these changes coming to Risk Rating 2.0. The good thing is due to the fact that there will be a decrease in flood insurance rates with FEMA.

This change is something that 45% or 46,812 policyholders will experience. The decrease itself will be more than $100 (>$1200 per year) which can kick in immediately. Considering that Virginia, specifically the western parts, is one of the top ten states that have the highest average when it comes to flood insurance premiums, this can really help a lot of people opt-in to that federal flood insurance market.

The Bad

There are also some bad changes happening to residents of Virginia when it comes to federal flood insurance. We'll show this as the blue portion of the graph and will cause an increase in flood insurance rates.

This will impact 48% or 50,931 policies in the state who are going to get that small increase. The increase in rates will range from $0 to $10 per month ($0 - $120 per year). Generally, this range can put you in a position where you might not have any change with your flood insurance rates with FEMA which is why there's a $0 there. 

The Ugly

Lastly, we also have the ugly changes which will be shown by the pink and grey portions. These changes will impact a total of 7% of the policies that FEMA has in force in the state and will cause a more significant increase in your rates once the Risk Rating 2.0 kicks in. Let's break them down a bit.

The pink portion will cover the bigger 5% of the two or about 5,903 policies in the state. The increase this time around will be ranging from $10 to $20 per month ($120 - $240 per year) which is why we put this in the ugly change. Virginia has expensive flood insurance premiums from FEMA and when you have to deal with an increase, it may not really help you in choosing federal flood insurance.

On the other hand, we still have to address the grey portion which is the uglier change between the two. This is generally because the increase will be more than $20 per month (>$240 per year). The increase is also expected to have some policyholders even get more than $100 per month increase in their rates with FEMA. This will impact 2% or 1,949 policies in Virginia

You can see the full graph of these changes below:

The Flood Insurance Guru | Virginia Insurance: New Federal Flood Insurance 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 Virginia, 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.

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