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FEMA 2.0: What FEMA’s New Flood Risk Rating Is and What It Means

FEMA (the Federal Emergency Management Agency) has recently updated its National Flood Insurance Program’s flood risk rating using a methodology it calls Risk Rating 2.0. This new risk rating will affect the majority of homeowners that carry a flood insurance policy on their home.
“FEMA 2.0” officially went into effect on October 1, 2021, after which new flood insurance policies are subject to the new ratings and existing flood insurance policies may take advantage of lower premiums if available. From April 1, 2022 onwards, renewals of existing policies will be subject to the new ratings, whether that means the premium is higher, lower, or the same.

Why FEMA 2.0? What Changed?

This is the biggest update of its kind in 50 years. Over the last 50 years, flooding has become more frequent and more severe. That coupled with a higher number of people living in coastal and flood-prone areas means more claims for flood-related damage than ever before.
Because of this, the previous way FEMA’s National Flood Insurance Program (NFIP) calculated flood insurance premiums didn’t cover the amount paid out for claims. The NFIP was $20.5 billion in debt to taxpayers as of August 2020, according to the U.S. Government Accountability Office – and that was after Congress canceled $16 billion in debt in 2017.
Something needed to change. FEMA 2.0 is a big step in the direction of making the NFIP more “actuarily sound” – that is, to ensure that the premiums paid reflect the real risk of flooding and cover claims paid out for flood damage.
Previous flood risk ratings, which determine insurance premiums, were mostly based on an individual property’s elevation and its location in a flood-prone zone. The new Risk Rating 2.0 takes into account additional variables and data including private sector data sets, catastrophe models, flood frequency, multiple flood types, distance to a water source, cost to rebuild, and more.
This new rating system is not just an update of old rates but is, according to FEMA, a “transformational leap forward.” FEMA says that previously, higher-valued homes paid less than their share of the risk while lower-valued homes paid more, but Risk Rating 2.0 will be fairer by ensuring premiums accurately reflect each policyholder’s risk going forward.

What This Means for Charleston Area Residents

If you live in the greater Charleston area and you carry flood insurance, you may be wondering what impact FEMA 2.0 will have on you.
FEMA reports that in South Carolina, 26% of current policyholders will see a decrease in their premiums, 65% will see an increase of $0-$10 per month, 6% will see an increase of $10-$20 per month, and the remaining 3% will see an increase of more than $20 per month. (See FEMA’s information on South Carolina here, PDF.)
So while it’s possible that you will see no change or even a decrease in your flood insurance premiums, it’s more likely that you will see an increase. However, the law limits the amount a premium can increase per year to 18%, so you won’t suddenly be hit with an annual premium that’s twice what you’re used to paying. Depending on your location and particular property, you could see your premiums increase for several years in a row.

How Can I Lower My Flood Insurance Premiums?

Unfortunately, there are no easy ways for individual homeowners to significantly reduce flood insurance premiums on homes in high-risk flood zones. However, there are some things you can do:

  • Install flood openings if your property doesn’t have them
  • Elevate your AC unit, furnace, and water heater above ground level
  • Elevate your home (FEMA guide, PDF)

Clearly these are not quick, inexpensive fixes. But they can significantly reduce the cost of your flood insurance premiums, saving you money over time, and, more importantly, protect against extensive and costly damage to your home in the event of a flood.

Moving to the Charleston Area? Talk to Kenton

If you’re moving to the Charleston area from another part of South Carolina or the country, then flood insurance may be new to you. Unlike other kinds of insurance, you can’t get a general quote for flood insurance premiums since they are specific to individual properties based on their location and elevation. This is something to consider when you’re looking to buy a home in the Charleston area.
That’s why you want to work with an experienced real estate agent like me. I’m Kenton Selvey, a Realtor with William Means, and I help people buy and sell homes in Charleston, Daniel Island, Mount Pleasant, and the surrounding areas. I’m happy to answer your questions about flood insurance, assessing a home’s flood zone, and moving to the area. Give me a call at 843-806-7222 or email me here. I look forward to hearing from you.