FEMA Moves Out on New Insurance Ratings

Downey Brand LLP
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[author: Susan Gilson*]

On April 1, 2021, the Federal Emergency Management Agency (FEMA) released an official announcement (Release Number HQ-21-079) and Memorandum for Write Your Own (WYO) Principal Coordinators and the National Flood Insurance Program (NFIP) Direct Serving Agent (W-21003) outlining plans for implementing its new NFIP rating system known as Risk Rating 2.0 described by FEMA as “Equity in Action.” The press release, memo to NFIP insurers, and a graphic depicting the national impacts of the new premium system are available on the Risk Rating page on FEMA’s website.

The new methodology was developed to allow FEMA to equitably distribute premiums based on the value of individual homes and the unique flood risk to that specific property. Under Risk Rating 2.0, additional flood risk variables will now be considered in premium ratings including flood frequency, multiple flood types (river overflow, storm surge, coastal erosion, and heavy rainfall), distance to a water source, and property characteristics such as elevation of the first floor and the cost to rebuild.

According to FEMA, the following current aspects of the NFIP are not changing under the Risk Rating 2.0:

  • Statutory rate caps on annual premium increases
  • Availability of premium discounts
  • Transfers of policy discounts to new homeowners
  • Use of Flood Insurance Rate Maps (FIRMS) for mandatory purchase and Floodplain Management
  • Availability of premium discounts for Community Rating System (CRS) participation

A two-phased approach is planned for implementation:

  • Phase One (October 1, 2021) – New policies (single-family homes, commercial, and multi-units) beginning October 1, 2021, will be subject to the new rating methodology. Also, beginning October 1, 2021, existing policyholders eligible for renewal who will receive a decrease in premiums under Risk Rating 2.0 will have the option to immediately take advantage of the decreases.
  • Phase Two (April 1, 2022) – All policies renewing on or after April 1, 2022, will be subject to the new premiums developed under Risk Rating 2.0.

Beginning now through August 1, 2021, FEMA will be working with insurers on the implementation of Risk Rating 2.0. In August 2021, homeowners should have access to their new premiums from their individual insurance agents. According to FEMA officials, individual NFIP policyholders are not expected to have direct access to their premiums in the first months of the program and it is unclear at this time when or if that approach will be available to the public.

Since premiums for individual properties are not going to be available until August 2021, and only to homeowners through their insurance agents, the National Association of Flood and Stormwater Management Agencies (NAFSMA) has urged that examples of various premiums (especially in leveed areas) be provided. NAFSMA is still concerned that impacts for policyholders behind levees still remain unclear although we understand that FEMA actuaries have worked with the U.S. Army Corps of Engineers to address leveed areas and that two statistics are expected to play a role in those determinations: the probability of overtopping and the probability of failure prior to overtopping.

At this point, in addition to the national view of rates, individual documents showing summaries of NFIP policies in many states are available here. You will need to search or scroll through pages to find your state’s information.

It is important to note that Risk Rating 2.0 is not without its critics on Capitol Hill, including Senate Majority Leader Charles Schumer (D-NY) who has recently shared his concerns about the approach and impacts to policyholders.

*Susan Gilson is the Executive Director of the National Association of Flood and Stormwater Management Agencies. You can find her at sgilson@nafsma.org

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