Flood Risk Rating 2.0 did indeed go into effect 10/1/21.

The top two questions we received after Part 1 of The Flood Risk Rating 2.0 overview were:  

  1. Will I lose my grandfathering?  The grandfathering subsidy is being phased out after 50 + years. 
  2. When will I see the first rate increase or decrease?   Here is the plan for rate rollout:
  • New business to NFIP  – All policies written as of 10/1/21 are rated using the FRR 2.0 system
  • Existing NFIP Accounts – Renewing 10/1/21 to 3/31/22
    • Carrier will issue renewal based on prior rating system approx. 6 weeks in advance of the renewal date of 10/1/21 to 3/31/22. 
    • Our agency will run a test rating under FRR 2.0 
    • The association will pay the lower of the two invoices.  
  • Existing NFIP Accounts  0Renewing 4/1/22 or after
    • Carrier will issue renewal using FRR 2.0 approx. 6 weeks in advance of the renewal date
    • The renewal bill will show the full FRR 2.0 premium (aka actuarial rate for that specific property) as well as the premium after applying the legislative CAP on the rate of 18% or 25%.  

For additional information we encourage you to review the Congressional Research Service’s Summary #R45999, dated June 4, 2021 at https://sgp.fas.org/crs/homesec/R45999.pdf

Important Announcement!

Following the collapse of the Champlain Towers South this summer there have been an increasing number of industry articles that confirm the property carriers’ worst nightmares …. Champlain was NOT an isolated issue.  It took less than five minutes of searching this morning to find a list of similar issues (see list below with hyperlinks to on-line articles).

That revelation, coupled with the devastating Hurricane losses in the coastal Mississippi, Alabama and NW FL areas have dramatically impacted condo underwriting in our area:

  • Carriers have pulled out
  • Carriers have restricted their writings
  • Carriers have failed and gone into receivership
  • Carriers have new underwriting requirements

­Items impacting pricing for coastal condominiums in FL, MS & AL include:

  • Five of the top 10 Costliest Hurricanes in the US occurred in the past 5 year and represent 48% of overall estimated insured damage of $270.8 Billion (see attachment)
  • Low Interest rates – in years with high interest rates the carriers can rely on that interest to help cushion the impact of high loss years.  The interest rates are so low right now that the premium pricing has to more fully support the expected claims.
  • Liquidation of two large FL carriers causing $168 million in losses.  Other carriers are at risk if there is another large storm this year.
  • Covid-19, underwriters worry about the impact of shut downs on the viability of properties with high rentals.  And, with many out of work the UWs are worried about the owners’ ability to pay their monthly assessments let alone any special assessments due to storm damage or planned renovations. 
  • The low interest rates, fears about other deteriorating buildings and Covid-19 have impacted losses and premium increases for General Liability, Directors & Officers and Umbrellas as well.

This article will concentrate on the underwriting requirements.  It impacts ALL condos so please share this information with your Boards and Committees. 

The constricting condo property market means carriers are writing less and getting much more persnickety about the condos they do write.   They are no longer taking information on faith, they want documentation. 

The carriers are increasingly asking for:

  • Copy of the most recent structural engineering report or in-depth major inspection report
  • Current board financials
  • All board notes from the preceding 12 months
  • Date of the last building recertification and any inspections or documents available for the most recent re-certification.  Date of the next planned recertification
  • Copy of last Reserve Study
  • Loss runs (GL and Property) for the past 5 years

For condos with storm damage since 2018:

  • Details regarding the scope of damage
  • Proof of Repairs including detailed description of the work performed and copies of paid invoices.  This is especially true when dealing with roofs, doors and windows.  The underwriters want to know that if condos were paid to replace those items, they did not simply repair them.
  • Please be prepared!

The spotlight is on coastal condos – by the insurance industry and legislators.  If you have any unaddressed building issues NOW is the time to deal with them to maintain your insurability.    

A large loss adjuster drove this point home to us yesterday when he told us of a Delray Beach condo that has been uninsured for the past six weeks at the height of Hurricane Season.  They have property damage and insufficient funds to even pay their deductible.  Their current carrier non-renewed them due to the unrepaired damage and Citizens, the market of last resort, isn’t an option because of their unrepaired damage. 

If you need a trusted vendor to assess your building envelope, roof, etc. please call us and we’ll be happy to provide you with referrals.  Afraid that you’ve got a big mess and no quick way to get out of it?  You are not alone.  There are trusted vendors who can help you break down the most challenging projects and triage the project and your finances to get the best results in a phased project approach.

The Community Association Institute has been actively involved on this topic since the collapse in June, 2021.  CAI understands the challenges facing the condominium industry dealing with aging infrastructure across the US.  As a result, they’ve made two of their publications available at no charge:

  • Breaking Point:  Examining Aging Infrastructure in Community Associations
  • Best Practices Report #1:  Reserve Studies / Management

Both books are invaluable resources for condo associations.

Articles referenced above:

  1. Destin – Shoreline Towers
  2. Residents at Trianon condo cut off from balconies for nearly a year due to construction
  3. Metal poles used to hold up second floor walkway at Linton Ridge condos in Delray Beach  
  4. Key West’s Santa Clara Condominium Association must produce a plan for repairs at a “condemnation hearing” set for Sept. 13 at City Hall, he said.  
  5. Enter at own risk: Images Condo 72 Kissimmee condos unsafe as walkways ‘in danger of collapse’
  6. Villa Bianca Condominium, Coral Springs, vacated after Special Magistrate deemed the structure unsafe.
  7. Champlain Towers South
  8. Versailles Sur La Mer condo complex condemned by Brevard County south of Melbourne Beach 2017 
  9. N Miami Beach condemns ‘unsafe’ condo, evacuates about 300 residents – Crestview Towers Condo 
  10. Partial Roof Collapse at NW Miami-Dade Apartment Complex Previously Evacuated 
  11. Miami-Dade courthouse evacuated after building inspection finds ‘safety concerns’

NFIP’s Updated Flood Risk Methodology

Since the 1970s, rates have been predominantly based on relatively static measurements, emphasizing a property’s elevation within a zone on a Flood Insurance Rate Map (FIRM).

This approach does not incorporate as many flooding variables as Risk Rating 2.0. Risk Rating 2.0 is not just a minor improvement, but a transformational leap forward. Risk Rating 2.0 enables FEMA to set rates that are fairer and ensures rate increases and decreases are both equitable.

FEMA is building on years of investment in flood hazard information by incorporating private sector data sets, catastrophe models and evolving actuarial science.

With Risk Rating 2.0, FEMA now has the capability and tools to address rating disparities by incorporating more flood risk variables. These include flood frequency, multiple flood types—river overflow, storm surge, coastal erosion and heavy rainfall—and distance to a water source along with property characteristics such as elevation and the cost to rebuild.

Bottom Line? Risk Rating 2.0 will transition individual properties to their actuarial rate for their property for both residential and commercial building owners. Some building owners will see their rates reduced, others will see an increase each year (capped at 18-25%) until their actuarial rate is reached.

What’s Not Changing Under Risk Rating 2.0

We are upholding statutory requirements by:

  • Limiting Annual Premium Increases Existing statutory limits on rate increases require that most rates not increase more than 18% per year for buildings built after the establishment of their Flood Insurance Rate Map and 25% for those built prior to the FIRM.
  • Using Flood Insurance Rate Maps (FIRMs) for Mandatory Purchase and Floodplain Management. FEMA’s flood map data informs the catastrophe models used in the development of rates under Risk Rating 2.0. That is why critical flood mapping data is necessary and essential for communities. It informs floodplain management building requirements and the mandatory purchase requirement.

Maintaining Features

We are maintaining features to simplify the transition to Risk Rating 2.0 by offering premium discounts to eligible policyholders. This means:

  • FEMA will continue to offer premium discounts for pre-FIRM subsidized and newly mapped properties.
  • Policyholders will still be able to transfer their discount to a new owner by assigning their flood insurance policy when their property changes ownership.
  • Discounts to policyholders in communities who participate in the Community Rating System will continue.

How does Risk Rating 2.0 affect the grandfathered rating discount?

Grandfathering has been available to policyholders when a map change results in either a rating zone or base flood elevation change. However, since Risk Rating 2.0 will be able to provide each building’s individual flood risk, all policies formerly eligible for grandfathering will transition to their new full-risk premium.

Increases will be gradual and within the 18% annual cap imposed by Congress. Decreases will apply upon first renewal on or after October 1, 2021. Similar to other policies, some premiums will decrease, some will increase, and some will stay about the same.