Editor’s Note: This blog was originally published in October 2017 but has been updated to include new information about flood insurance.
Before investing in flood insurance, most homeowners have many questions about this coverage, including how much coverage to buy, where to buy it, ways to save money on it, and more. In addition to these commonly asked questions, a wave of new inquiries has been coming our way from homeowners and buyers as the news has spread about a historic change in the way flood insurance rates are being determined.
Effective October 1, 2021, the Federal Emergency Management Agency (FEMA), which administers the National Flood Insurance Program (NFIP), implemented a new flood insurance pricing methodology called Risk Rating 2.0. Since most homeowners get their policies through the NFIP, this rating change could impact millions of current and future Massachusetts and Rhode Island homeowners and their flood insurance premiums.
Considering the increasing importance of flood insurance for all homeowners and FEMA’s new rating methodology, we thought there was no better time to revisit the ins and outs of flood insurance by interviewing our HIG principal and broker, Paul Burke.
Q: What does flood insurance cover?
Paul: Just one inch of water in your home can cause catastrophic losses to your electrical and plumbing systems, furnaces and water heaters, appliances, carpeting, foundation and walls, staircases, furniture, electronics, and more. A flood insurance policy typically provides coverage for these types of physical losses to your home’s structure and its contents when they are the direct result of flooding.
However, not all water damage in the home is considered flooding, so at HIG, we take care to share with our current and soon-to-be homeowners what actually constitutes a flood and what situations may lead to an eligible flood insurance claim. The definition of a flood has broadened over the years to include many flood-related scenarios that property owners may not be aware of, including damage caused by a mudflow or by the collapse of land due to unexpected erosion, waves, or currents.
After we explain flood insurance and what it typically covers, a common follow-up question many people have is whether their standard home insurance policy provides this same protection. While a home insurance policy may include coverage for many types of water damage, destruction of your home and its contents as a result of flooding is not one of them.
Q: Who needs flood insurance?
Paul: According to FEMA, 90% of all natural disasters in the United States involve flooding, and it is by far the costliest weather threat to homes. With sea levels on the rise and storm systems increasing in severity and frequency, many experts, including our team at HIG, believe that all properties are at risk for flooding.
Certainly, the properties in our area that are close to a body of water, whether they sit along the shoreline or near a river or lake, are at the highest risk for flooding. These homeowners are almost always required by their lender to have flood insurance. But these are hardly the only homes at serious risk for flood. In fact, about 25% of flood insurance claims come from moderate- to low-risk flood areas.
Call us overly cautious at HIG, but we believe that if you live anywhere it rains, it would be wise for you to consider purchasing flood insurance.
Q: How do you buy flood insurance?
Paul: The longest-standing and most common source for flood insurance is the NFIP. This program has been around since the late 1960s and provides flood insurance to millions of homeowners across the United States. As prevalent as this program is, there are some drawbacks for homeowners. It leaves little room for customization of flood policies, and there are no competitive rate options as the pricing structure is set by the government.
However, the NFIP is not your only option for flood insurance. In recent years, private flood insurance companies have emerged as a viable alternative in the flood insurance marketplace. Some of these private flood carriers offer additional coverages that are not available through the NFIP, as well as significantly higher coverage limits and short to no waiting periods for effective coverage. Finally, this emerging private flood insurance market means that people can now shop around for the best flood insurance rates, whether for a new or renewing policy.
You do need to work with an insurance agent to gain access to flood insurance, whether you are buying it through the NFIP or the private insurance marketplace, as these policies cannot be purchased directly. Plus, getting help from an established local insurance team to select the best flood solution for protecting your property can be very beneficial. At HIG, we have decades of experience navigating the flood policy application process as well as exceptional familiarity with the landscape of this community and skill in determining the flood risk of each individual property.
Q: How might FEMA’s Risk Rating 2.0 impact flood insurance?
Paul: Almost since its inception, the NFIP has based flood insurance premiums on the same two relatively static measurements: a property’s designated flood zone and its lowest elevation above sea level. Risk Rating 2.0, on the other hand, incorporates far more flood risk variables into this process, including flood frequency, multiple flood types, and distance to a water source, as well as elevation, cost to rebuild, and other property-specific characteristics. The objective of this new rating methodology is to ensure that flood insurance premiums are set and renewals are increased and decreased in a fairer and more equitable way than in decades past.
If you are a current NFIP policyholder, your policy will not be subject to this new rating system until April 1, 2022, or after, depending on your renewal date. However, that doesn’t mean you should wait until your policy is up for renewal to see what your premium may look like under the new methodology. Instead, you can get a jump on your renewal rate by contacting HIG. We can estimate your flood insurance policy premium under Risk Rating 2.0 and let you know how much of a rate change you might be facing.
Current NFIP policyholders whose premiums are expected to increase under the new program may see their premiums go up by as much as 18% per year until they reach a level that fairly reflects your property’s flood risk according to Risk Rating 2.0. For these homeowners, the HIG team will do our best to help you manage your flood risk and rates by recommending risk mitigation strategies and searching the private insurance marketplace for better coverage and pricing.
New NFIP policies are immediately subject to this revised rating system, and, because there are no limits on rate increases, some properties — particularly high-value real estate close to or along the shoreline — may be hit with price hikes of 1,000% or more. If you have been home-shopping and have your eye on a few properties, give HIG a call so we can estimate the flood insurance premium you might pay on each house. The cost of flood insurance could end up being one of the major decision factors in your homebuying process.
Q: How can you save on flood insurance?
At HIG, our goal is to get you the most favorable flood insurance rates for your current or new property. Of course, the best way for us to do that is to speak with you one on one about your home, asking questions that will help us uncover all the factors that may impact your flood insurance costs.
After our thorough assessment of your property, we might suggest some of the following cost-lowering strategies.
- Get an Elevation Certificate (EC). While elevation certificates are no longer required under Risk Rating 2.0, you can still purchase and submit one to your insurance agent, who can determine if this information may lower your insurance cost. However, since an EC can cost as much as $1,000, HIG will generally recommend this to you only if we feel strongly it could save you money based on our knowledge of your community and individual property.
- Take over an existing flood insurance policy. If you’re about to buy a home, you should ask the existing residents if they already have a flood insurance policy. The NFIP allows you to take over an existing flood policy when purchasing a home in a flood zone. Because this policy is already in effect, it is likely the premium will be lower than if you were to buy a new flood policy right now. Even if you take over an existing flood insurance policy, though, it’s smart to have HIG estimate what your flood insurance cost might be when this policy renews, as it will then be subject to the new rating methodology.
- Lower your home’s flood risk. Taking steps to mitigate your home’s flood risk may not only better protect your property against flood damage but can also help reduce your insurance costs. Some of the most common mitigation strategies are elevating utilities or your entire property, installing flood openings on your lowest floor, and filling your basement. The HIG team can help determine if any of these are a good strategy for your specific property and location.
Q: Is there flood insurance for renters and condo owners?
Paul: Yes, there is. And, since renters and condo insurance policies are similar to home insurance policies in the sense that neither of them offer coverage for flood damage, it is wise for renters and condo owners to consider purchasing a flood insurance policy. Typically, the property owner, whether they be a condo owner, condominium association, or landlord, is required to carry flood insurance coverage for the building. So, this means renters and condo owners likely only need to purchase a flood policy that covers their personal belongings.
To know how much of this contents coverage you might need to purchase, we recommend doing a home inventory, which will help us come up with an actual cash dollar amount for your belongings so you are neither overinsured nor underinsured.
In addition, if you’re a condo owner, it’s very important that you read the condo association bylaws to understand specifically what is covered and what is not. An HIG professional can help you review the terms of your condominium bylaws, identify any potential gaps in flood coverage, evaluate your flood risk, and assist you in finding a policy that best fits your coverage needs.
Have more questions about flood insurance? Ask Paul.
At HIG, we believe every current and new homeowner should be considering the value of having a flood insurance policy, whether or not you’re required to do so. In today’s climate, every home is at risk for flooding. Paul would be glad to answer your additional questions about FEMA’s all-new pricing methodology, your property’s specific flood risks, and what flood insurance solutions might be best for your current home or a property that you’re interested in.
Please give HIG a call at (508) 676-5949 and put our experience with flood insurance to work for you today.