The federal government is delaying implementation of a major change to its pricing formula for federal flood insurance that bases rates on a more accurate assessment of the real flood threat for each home and reflects the cost of rebuilding.
The new methodology, called Risk Rating 2.0, had been set for an October 2020 launch but is now scheduled to be implemented a year later in October 2021. FEMA unveiled the new rating plan for the National Flood Insurance Program (NFIP) last March.
FEMA said the delay is because it needs some additional time to do a “comprehensive analysis of the proposed rating structure so as to protect policyholders and minimize any unintentional negative effects of the transition.”
Additionally, FEMA said the delay allows for all NFIP policies, including single-family homes, multi-unit and commercial properties, to switch to the new rating system at one time instead of a phased approach, as originally proposed.
The plan calls for using private sector data and models to calculate the real flood threat for each home. It would also differentiate coastal flood risk from other types of flooding while incorporating the actual cost of rebuilding a structure into NFIP rates.
Overall, the switch is likely to mean higher rates for homeowners in high-risk flood areas and more revenues for NFIP. It could also prompt more communities to plan better for flooding.
The current methodology relies primarily on whether a home is inside or outside of the 100-year flood plain. In explaining its new rating program, FEMA gave examples of two homes in a 100-year flood plain. One of the homes is at the edge of a flood zone and faces low risk of flooding from inland flooding or storm surge. The other home faces higher risk from both. Under the current system, they both are charged the same premium. Under Rating 2.0, the first home’s premiums would fall by 57 percent, while premiums for the second home would more than double.
The National Association of Mutual Insurance Companies applauded the move back in March, saying it would make the NFIP “more like an actual insurance program.”
Now, NAMIC says “millions of homeowners” will be at “greater risk of flooding” because of the postponement by FEMA.
“Virtually every home in America faces some risk of flooding, and every homeowner should be able to know how great their risk is,” said Jimi Grande, senior vice president of government affairs for NAMIC, in criticizing the delay.
“In the past few years, we’ve seen communities from coast to coast devastated by flooding. Delaying Risk Rating 2.0 effectively encourages continued development in flood-prone areas and, worse, will leave homeowners across the country with fewer choices for flood insurance, making them more vulnerable to flood risks they oftentimes have no idea even exist.”
Grande said the delaying is “troubling, though not surprising” and “will keep that status quo rather than doing the hard work of addressing the NFIP’s structural and financial flaws.”