In 2021, Deeley shared news of the changes to NFIP‘s risk rating system for flood insurance. “Risk Rating 2.0” took into account a number of new variables to establish rate, the most prominent being:
- Flood frequency
- Flood type (e.g., river overflow, storm surge, heavy rainfall and coastal erosion)
- Distance between a property and water source
- Property rebuilding costs
The first three are measurable items, but with the ever-changing economy, determining the rebuild value of a property is difficult. To continue using this metric, the NFIP sends a notice to policy holders every three years requesting an appraisal or replacement cost estimator.
Breaking it Down
A policy holder’s current replacement cost value is printed on the declaration page of their policy. National Flood Insurance Program policies are limited to $250,000 per unit in a condominium association. However, some of our buildings would cost more than $250,000 a unit to rebuild.
If a homeowner buys the maximum limit and is at the actual risk rate of the new 2.0, they could budget for their premium to be flat until the NFIP announced rate increases.
But now that rebuild cost is a rating factor, policy holders are seeing increased premium, without receiving any increased coverage.
Example:
- 4-Unit condominium building buys the maximum amount of NFIP coverage – $1,000,000. ($250,000 per unit)
- The condominium pays the same premium for three years and the policy declaration page lists the replacement cost value at $1,000,000.
- NFIP then requires a replacement cost estimator or appraisal that indicates the replacement cost of the building to be $1,500,000.
- The replacement cost on the declaration page is updated to $1,500,000.
- The premium of the policy increases due to the increased value of the property.
- The coverage remains $1,000,000.
At Deeley we like to provide expanded coverage when our clients are paying more in premium, so this message is difficult for us to deliver to policy holders, though very important to understand.
As an added service, Deeley clients can be provided a replacement cost estimator every three years to appease the National Flood Insurance Program regulation.
Disclaimer
Replacement cost estimators are regularly used in the insurance industry to attempt to determine the cost to rebuild the dwelling if it is destroyed. As the name indicates, the numbers are only estimates, and may not fully account for specific property features. Rebuilding costs are also subject to fluctuations due to market conditions. The actual cost to repair the building and/or replace the property may exceed the amount calculated by the estimator and the limits selected.
Deeley Insurance Group makes no representation as to the accuracy of the replacement cost estimate, now or in the future. If in doubt about the limits selected, the applicant/policyholder should seek a professional appraisal or the assistance of a builder to assess reconstruction costs.
We’re Here to Help
Did your flood insurance provider send you a letter asking for a replacement cost estimator? Our friendly local experts are standing by, ready to help. Call or text 410.213.5600 today.
