The Michigan Department of Insurance and Financial Services (DIFS) said the National Flood Insurance Program (NFIP) estimates that under its new rating system more than 52% of Michigan flood insurance policies will see immediate savings once the program begins.
The NFIP’s Risk Rating 2.0 program went into effect on Oct. 1. The department said that previous pricing for federal flood insurance was based on a limited number of data sources and did not consider important individual factors, such as a building’s first floor height or the direct distance from a potential flood source.
In addition, the previous underwriting process required prospective insurance customers to obtain a flood elevation certificate and survey, which can cost up to $2,000.
Finally, as part of the application process, insurance agents were required to identify certain home characteristics, including foundation type, which could lead to errors and ultimately to policy cancellation.
“The NFIP’s Risk Rating 2.0 will simplify the process of purchasing flood insurance and will help make it more equitable, easier to understand, and less expensive,” DIFS Director Anita Fox said in a media release. “Under this new NFIP program, more than half of Michiganders will see lower costs on flood insurance, a vitally important tool to help ensure peace of mind during the severe weather season and beyond.”
Risk Rating 2.0 expands the data sources used in federal flood insurance underwriting, the DIFS said. This enables more accurate pricing based on a property’s individual characteristics and removes the requirement for a flood elevation certificate.
In addition, the department said Risk Rating 2.0 will make flood insurance more equitable, as a property’s replacement cost will now be factored into the premium. This makes lower-valued properties less expensive to insure and prevents the premiums paid on these properties from subsidizing more expensive properties in riskier areas.
Overall, NFIP estimates that more than 52% of Michigan flood insurance policies will see immediate savings once the program begins and forecasts a 75% reduction in the national maximum price for a federal flood insurance policy.
New policies beginning Oct. 1, 2021, will be subject to Risk Rating 2.0. Existing policyholders who will see their premium decrease under the new rating methodology will be able to opt-in at renewal between Oct. 1, 2021 and April 1, 2022. All remaining policies renewing on or after April 1, 2022, will be subject to the new rating methodology.
The department noted that in addition to federal flood insurance, a number of insurers offer private flood insurance in Michigan.
Source: Michigan DIFS
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