Flood Insurance Rates

New rate equity system

 Debbi Conrad  |    November 08, 2021
Flood insurance

On October 1, 2021, FEMA began implementing a new flood insurance pricing methodology called Risk Rating 2.0: Equity in Action. These changes took effect October 1 for new policies and some renewals, and will take effect for the renewal of all remaining policies on April 1, 2022.

The Risk Rating 2.0 approach prices each home individually, rather than by flood zone, using modern industry technologies, more flood risk variables and property-specific characteristics including elevation, distance to water, flooding frequency, type of building, resilience measures in place to mitigate damage, and cost to rebuild. One million homeowners will see a significant rate decrease at renewal while the majority of other homeowners will pay a slight increase or decrease. Some will see significant increases, but the new top rate in the program is $12,000 per year compared to $63,000 under the old system. Annual rate increases also are limited by law in most cases to 18%. 

Currently, many policyholders with lower-valued homes are paying more than their share of the risk while policyholders with higher-valued homes are paying less than their share of the risk. Under the old system, premiums often depended on outdated flood maps and a rudimentary calculation of risk. It meant that some people who purchased policies paid far too little for insurance through the program while others paid too much. Risk Rating 2.0 will equitably distribute premiums across all policyholders based on home value and each property’s unique flood risk. Therefore, low-value properties will no longer subsidize high-value properties. 

The new rating system only affects National Flood Insurance Program (NFIP) risk-based rates and does not change flood mapping or flood insurance requirements. Flood damage is excluded under standard homeowner insurance policies, and a home doesn’t have to be in a high-risk flood zone to obtain flood insurance. Homes and businesses in high-risk flood areas with government-backed mortgages will continue to be required to have flood insurance, and other lenders typically require it as well. Policyholders will still be able to transfer discounts to a new owner by assigning their flood insurance policy to the new owner.

Not just waterfront properties

Keep in mind that a property does not have to be near water to flood. Heavy rain, rising lake and river levels, melting snow, drainage system backups and broken water mains can all cause flooding. Extreme weather events responsible for destructive flooding are more frequent with each passing year. Climate change makes them more severe and harmful, and threatens property once thought safe from danger. In fact, 25% of flood insurance claims occur in low- or moderate-risk areas. 

Disclosure of flood zones

In a real estate transaction, the presence of a property in a floodplain or area of flood risk is identified in various ways.

Seller disclosures

The statutory Real Estate Condition Report form requires the following flood-related disclosures:

B7. Are you aware of defects in the basement or foundation (including cracks, seepage, and bulges)? Other basement defects may include items such as flooding, defects in drain tiling or sump pumps, or movement, shifting, or deterioration in the foundation.

F4. Are you aware of the property or any portion of the property being located in a floodplain, wetland, or shoreland zoning area?

The statutory Vacant Land Disclosure Report form requires the following flood-related disclosures:

E3. Are you aware that all or a portion of the property is in a floodplain, wetland, or shoreland zoning area under local, state, or federal regulations?

F2. Are you aware of flooding, standing water, drainage problems, or other water problems on or affecting the property?

F3. Are you aware of material damage from fire, wind, flood, earthquake, expansive soil, erosion, or landslide?

The offers to purchase refer to a part or all of a property being located in a floodplain as one of the “Conditions Affecting the Property or Transaction” the seller discloses to the buyer under the Property Condition Representations section of the offer. The WB-13 Vacant Land offer also refers to flooding affecting the property and flood damage as part of that disclosure requirement.

Licensees generally owe the parties a duty to disclose adverse material features, and information suggesting such features, that the licensee knows, and the parties do not know and cannot discover through reasonably vigilant observation. Brokers and agents are not, however, required to investigate independently whether a property is in a flood zone or otherwise in an area likely to be subject to flooding or flood risks. A licensee may consider a disclosure, for example, if the licensee knows the property is in an area where flood insurance is required or was required in the past, or an area that has flooded in the past.

Flood risk resources for property owners

If a party wants to get an idea of the flood risk, if any, associated with a property, there are tools available to give an approximate idea. Flood maps by address may be obtained at the FEMA Flood Map Service Center at msc.fema.gov/portal/home. Property owners also may use Flood Factor, the NAR tool that provides comprehensive flood data, including the FEMA flood zone and a risk score between 1 (minimal risk) and 10 (extreme risk) for specific properties. Visit www.floodfactor.com.

Flood insurance provisions in addenda

If a property is in a flood zone or in a location at risk for flooding, licensees should recommend buyers investigate the current and future availability and anticipated cost of flood insurance. 

Several offer to purchase addenda include provisions or contingencies concerning flood insurance and premiums. For example, the WRA Addendum A advises the buyer their mortgage lender may require them to purchase flood insurance. It is suggested a buyer consult with one or more flood insurance carriers regarding flood insurance coverage as well as current and future premiums. The Flood Insurance Premiums Contingency allows the buyer to explore available flood insurance policies and associated premiums with insurance agents and determine whether their annual flood insurance premium would exceed the amount they have stated in the contingency, which might be the amount they have learned the seller presently pays.


Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.

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