The Federal Emergency Management Agency today announced sweeping changes to the National Flood Insurance Program that will fundamentally alter the way it prices insurance and determines an individual property’s flood risk. The new methodology—which FEMA dubbed “Risk Rating 2.0”—is intended to deliver rates that are more equitable and more accurately reflect flood risk.
“To provide more equity, FEMA now has the capability and tools to address rating disparities by incorporating more flood risk variables,” the agency said in a press release. “These include flood frequency, multiple flood type—river overflow, storm surge, coastal erosion and heavy rainfall—distance to a water source and property characteristics such as elevation and the cost to rebuild.”
FEMA announced a phased approach to roll out the new rates. In Phase 1, new policies beginning Oct. 1, 2021, will be subject to the new rating methodology. In addition, existing policyholders eligible for renewal will be able to take advantage of immediate decreases in their premiums. In Phase 2, all policies renewing on or after April 1, 2022, will be subject to the new rating methodology.
FEMA earlier this week posted state-by-state facts sheets outlining how the changes will affect policyholders each state. A comparison of the fact sheets showed that the new methodology is likely to have an uneven effect on states, with some states seeing rates increase, while others will see decreases.
