The National Flood Insurance Program is making changes to the way it calculates flood insurance rates. Beginning Oct. 1, 2021, flood policy holders will be subject to the new rating methodology. The new pricing methodology is called Risk Rating 2.0 and it leverages industry best practices and cutting-edge technology to enable FEMA to deliver rates that are easier to understand and better reflect a property’s flood risk.
The National Flood Insurance Program (NFIP) is implementing reforms that will take effect October 1. The reforms will require flood insurance premiums to more accurately reflect flood risk and discourage development in flood hazard areas. The changes are intended to make rates fairer for those who have flood insurance and help us avoid a bailout of the program later.
When Will These Changes Happen?
PHASE I
New policies beginning Oct. 1, 2021, will be subject to the new rating methodology. Also beginning Oct. 1, existing policyholders eligible for renewal will be able to take advantage of immediate decreases in their premiums.
PHASE II
All remaining policies renewing on or after April 1, 2022, will be subject to the new rating methodology.
How Does this Affect You?
FEMA reports that flood policyholders see an average premium increase of $8 per month under the current rating methodology. Risk Rating 2.0 accounts for several additional risk factors, which allows for premiums that are better aligned with the unique needs of the customer. Here are the rates that existing policyholders can expect to see:
- FEMA estimates that approximately 66% of policyholders will see a $0-$10 per month increase in premium
- About 23% of policyholders will see a decrease of $86 per month
- 7% of customers may see an increase of $10 – $20 per month
- 4% of customers may see an increase of $20 or more per month
What Is not Changing?
FEMA is maintaining some features to simplify the transition to Risk Rating 2.0 by offering premium discounts to eligible policyholders. These other features that will continue to be offered are:
- Limiting Annual Premium Increases
- Using Flood Insurance Rate Maps (FIRMs) for Mandatory Purchase and Floodplain Management
- 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
With Risk Rating 2.0, FEMA now has the capability and tools to address rating disparities by incorporating more flood risk variables. Currently, policyholders with lower-valued homes are paying more than their share of the risk while policyholders with higher-valued homes are paying less than their share of the risk. Ultimately, these changes are intended not only to make rates fairer but also decrease risk and reduce future federal payouts from natural disasters that cause billions of dollars worth of damage.
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