Flood insurance is a big deal in New Orleans, and some substantial changes are being made to the program starting October 1st. (There is a last-second bill in the Senate looking to delay the implementation until next year.) Premiums will be going up for the vast majority of us, but the details are pretty confusing. Here’s a quick look at how the flood insurance program’s Risk Rating 2.0 will affect you.
Since flood insurance is a national program, FEMA is changing the methodology it uses to calculate premiums. The goal is to have the locations that are more likely to have claims pay a rate that reflects that fact. As a result, I’d bet premiums are going down in Utah, for example. Here, not so much.
Starting October 1st, new premiums will be assigned to every property. If you currently carry flood insurance:
- Nothing will change until it’s time to renew your policy, so don’t freak out about the October 1st date.
- You will be made aware of your new premium, and it won’t make you happy. Indications are some areas could see premiums go up by $1,000 – $2,000 annually, however…
- Your policy can not increase by more than 18% each year. For example, if you’re in an X zone, paying $572/year, and your new premium will be $2,500, it will take about nine years of increases at 18% until you’ll actually pay $2,500/year.
- By the way, this example reflects a real estimate on a house in Marrero and represents a worst-case scenario. The only thing being in an X flood zone means now is that your lender will not require you to carry flood insurance. This new risk rating system uses other criteria, like first floor height, construction type, foundation (slab is considered higher risk), and the number of floors
If you’re buying a house, you’ll want to assume the seller’s flood insurance policy as opposed to getting a new one for yourself. By assuming the policy, you keep that 18% limit on annual premium increases. Confirm the existing policy is assumable during your inspection/diligence period — it should be.
If you purchase a new flood insurance policy, whether it’s for a home you’re buying or your existing home, you’ll start paying the full, higher premium right away.
That’s the nuts and bolts of it. As always, talk to your insurance agent (or get one) to get the most accurate information from an expert. That’s going to be important moving forward, as the agents I’ve talked to expect there to be changes and some turbulence as Risk Rating 2.0 is implemented.
