After a delay last year, Risk Rating 2.0 is moving forward for FEMA issued National Flood Insurance Program policies. As always, you can depend on us to keep you updated on the latest FEMA developments and alternate private markets that may offer a better choice for you.
What's the Timeline?
Phase I—This phase will start on Oct. 1, 2021. All new NFIP policies beginning on or after this date will be subject to Risk Rating 2.0. In addition, current policyholders who are up for renewal on or after this date and eligible for premium rate decreases under the new pricing methodology will be permitted to start paying reduced costs.
Phase II—This phase will start on April 1, 2022. All current NFIP policyholders who are up for renewal on or after this date will be subject to Risk Rating 2.0.
What is Risk Rating 2.0?
Risk Rating 2.0 is a pricing method that leverages industry best practices and cutting-edge technology to enable FEMA to deliver rates that are actuarily sound, equitable, easier to understand and better reflect a property’s flood risk.
Why Risk Rating 2.0?
Risk Rating 2.0 is intended to establish fairer rates for policyholders based on their unique flood hazards and property characteristics. By utilizing additional information and variables to determine NFIP policyholders’ premium rates, FEMA said it will be taking a “transformational leap forward” in the scope of ensuring accurate and equitable rates for all homeowners.
FEMA’s current pricing methodology for the NFIP—which has been in place for nearly 50 years—primarily bases policyholders’ premium rates on static measurements- property elevation and flood zone.
Under Risk Rating 2.0, FEMA has integrated further flood hazard information into the NFIP pricing methodology—including private sector data sets, catastrophe models and actuarial science elements. Apart from property elevation, Risk Rating 2.0 also incorporates the following flood variables within premium rate calculations:
• 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
Will I pay more for flood insurance?
FEMA states Risk Rating 2.0 will have the following impacts on current NFIP policyholders’ premium rates:
• Nearly a quarter (23%) of policyholders will experience premium rate decreases, paying an average of $86 less each month.
• Two-thirds (66%) of policyholders will encounter moderate premium rate increases, paying an average of $0-$10 more every month.
• The final 11% of policyholders will experience more significant premium rate increases—with 7% paying an average of $10-$20 more each month and 4% paying an average of over $20 more every month.
What's Not Changing
FEMA confirmed that these aspects of the NFIP will remain the same:
• Utilizing flood mapping—In addition to the aforementioned flood information and variables, the FIRM will continue to be incorporated within NFIP pricing methodology.
• Setting limits on rate increases—Statutory limits on premium rate increases will stay in place, meaning that most rates cannot rise by more than 18% each year.
• Offering discounts—A wide range of existing NFIP premium discounts will still be offered to eligible policyholders. This includes (but is not limited to) continuous coverage grandfathering, discounts for policyholders who belong to communities that participate in the Community Rating System and the transfer of policy discounts to new homeowners when properties change ownership.
We will continue to provide updates to Risk Rating 2.0 as we receive them. As your trusted advisor, we're here to help and to answer any questions you may have.