By Maria Scandale
Changes to the federal flood insurance rate maps are being reflected in policy renewals and new policies.
Known as Risk Rating 2.0, the Federal Emergency Management Agency’s update to the National Flood Insurance Program’s risk rating method affects any house in a flood zone that has a federal mortgage and thus is required to be covered by flood insurance.
The SandPaper talked with Jeffrey R. Wyrsch, vice president of personal insurance lines for the Van Dyk Group, about the changes to the rating system and effects going forward. Wyrsch is on the board of directors for the Independent Insurance Agents and Brokers of New Jersey, as well as on the Flood Insurance Task Force of the Independent Insurance Agents and Brokers of America.
“Flood insurance is a very hot topic over the next two years, especially as Risk Rating 2.0 is rolling out,” Wyrsch said recently.
The National Flood Insurance Program began implementing new rating system 2.0 as of Oct. 1, 2021, on any new policies being written. Existing policies being renewed will be subject to the new method as of April 1, 2022.
“Until April 1, when the policy is renewing, you have the option to leave it as is, or use 2.0. Starting April 1, every renewal will automatically go into risk rating 2.0,” said Wyrsch. That is unless Congress makes changes to the program.
In general under the new system, premiums are more equalized across the board. “Most policies on the Island will generally range from $1,500 to $3,000 under the new rating system, where there used to be a larger range,” Wyrsch said.
He listed categories that may surprise some policyholders.
“What I’ve been seeing on LBI in particular is that well-elevated homes – homes that are up on pilings and well above ground – their rate is actually going to go up quite a bit. Right now, let’s say for an average home the rate might cost about $700 a year, and if we re-rate that in 2.0, in some cases it actually even doubles.”
The coverage is based on costs to rebuild the house. The replacement cost of an average Long Beach Island home on pilings is about $500,000.
Conversely, the cost to insure homes not on pilings may go down under the new rating as compared to the old.
“Homes that are not very well elevated and also homes in a V-zone, that includes a lot of oceanfront homes, might have been paying $5,000 or $6,000, even up to $10,000 – now they get rates closer to $2,000 and $3,000 a year.”
One of the changes being implemented with RR2.0 is that being located on a barrier island is a rating factor that automatically increases the cost for both elevated and non-elevated homes.
“It’s going to group everybody into a smaller window where most people will be paying similar amounts. There will be cases where people will save a great deal of money right off the bat.”
Some differences between the old and the new method are explained. “The new risk rating is very different than the old method,” Wyrsch said.
“Previously, any property or any home was rated mostly based on an elevation certificate, which tells you how high the first floor of a home is. They compared that to the base flood elevation, which is how high your home should be raised. In the new rating method, an elevation certificate is not required. They mapped each individual property, and it gets rated according to their methodology,” which he said “is complicated and difficult to understand.”
He added, “They do take into account how high your first floor is. You can use an elevation certificate, which is sometimes helpful. If you don’t have an elevation certificate, their computer program estimates your first-floor height.”
The new rating takes a lot more factors into account, Wyrsch added. “Certain factors like being on a barrier island affect your rate; your proximity to tidal water affects your rate. … It’s a lot more complicated than it used to be.”
Premium increases will go up gradually for those policyholders slated for increases.
“First and foremost, for anybody who already has an NFIP policy, any rate increase is going to be capped like it used to be. Primary homes will have much smaller annual rate increases than secondary homes, and these rate increases will be applied each year until you reach what a new policy would be – the true risk rate, they call it.”
The Van Dyk Group processed over 5,500 claims after Superstorm Sandy. Out of that experience, Wyrsch realized there was a need for private flood insurance as an alternative choice to the National Flood Insurance Program, although the company still does offer NFIP policies as well.
The product that Wyrsch developed for the Van Dyk Group through support by Lloyd’s of London provides up to a million dollars for the building (in some cases more) and up to $250,000 in personal property coverage on a standard policy. In some cases, coverage can be extended to almost $1 million on contents. By contrast, NFIP limits coverage to $250,000 for the building and $100,000 for personal property.
There are also seven other private flood insurance programs that the Van Dyk Group offers.
“These private flood products meet all federal requirements and are accepted by mortgage companies,” lists an article on the Van Dyk Group website.
“There are many private flood options out there, and I think they will become more and more important after these changes go through,” Wyrsch said. “We will go over all the options with people and recommend what is best for them. Sometimes the best is with the NFIP, and sometimes it’s better to go with the private market. In some cases homeowners will have an NFIP policy plus an excess flood policy in the private market.”
Last Updated on November 7, 2022
