Risk Rating 2.0

In the implementation of Risk Rating 2.0 (RR 2.0), FEMA has applied their administrative authority to update the pricing methodology for the NFIP – the first major overhaul of rates since the 1970’s.  On October 1, 2021, new policies will be subject to RR 2.0, and on April 1, 2022, renewing policies will be written under RR 2.0.  Using new capabilities and tools, RR 2.0 incorporates more flood risk variables, including the property’s replacement cost value and flood frequency.  For more information on RR 2.0, please visit: https://www.fema.gov/flood-insurance/risk-rating.

To review and download state-, county-, and ZIP code-level data on first-year policy premium changes, please visit: https://www.fema.gov/flood-insurance/risk-rating/profiles.  Current or prospective policyholders should contact an agent to learn about specific impact of RR 2.0 on their properties.

FAQ

CSFI has compiled frequently asked questions regarding RR 2.0, its administration, and its effects on affordability and risk assessments.  The following responses were provided by FEMA in response to questions posed during an April 2021 webinar.  For addition answers to FAQs, as provided by FEMA, please click here.

What is the total number of active NFIP policies? How many homeowners does 4% seeing greater than $20/month equate to?
Out of approximately 5 million NFIP, 1,167,282 will see premium decreases on average of $86 per month — which was not possible under the current pricing methodology. Approximately 3,325,446 will see premium increases up to $10 per month. Approximately 330,698 will see increases of between $10-20 per month, and 194,446 will see premium increases greater than $20 per month. Current policyholders who will have premium decreases under Risk Rating 2.0 will transition to the lower rate immediately at the first renewal of their policy. Any premium increases will transition gradually and within the existing statutory limits of no more than 18% per year until the full-risk rate for the property is reached.

What will the maximum NFIP policy cost be for a homeowner?
$12,125 is the maximum premium any single-family home policyholder will receive in year one under Risk Rating 2.0 – Equity in Action. It is not an official cap, but rather the maximum amount any single-family home policyholder will pay based on the new pricing methodology. This maximum could change in future years. These maximums will be reviewed annually and updated incrementally.

In the FAQ of the RR2.0 is Equity in Action document, it says “all policies formerly eligible for Grandfathering will transition to their new full risk rates.” How does that square with continuing to allow discounts to newly mapped policyholders?
Grandfathering has been available to policyholders when a map change results in either a rating zone or base flood elevation change. However, since RR 2.0 will be able to provide each building’s individual flood risk, all policies formerly eligible for grandfathering will transition to their new full-risk premium gradually and within the 18% annual cap imposed by Congress. Decreases will apply upon the first renewal on or after Oct. 1, 2021. Similar to other policies, some premiums will decrease, some will increase, and some will stay about the same.

FEMA will continue to offer statutory premium discounts for Pre-FIRM subsidized and Newly Mapped policies. Policyholders will still be able to transfer their discount to a new owner by assigning their flood insurance policy when their property changes ownership.

Are elevation certificates going to be required to purchase insurance?  If not, what will be used to determine the difference between a home’s elevation in relation to a flooding source?
Elevation Certificates (ECs) will no longer be required to purchase coverage under Risk Rating 2.0. Instead, FEMA will use its tools and resources to determine the first-floor height of a building as one of the factors used when calculating rates. While not required, policyholders may choose to purchase an elevation certificate, which provides more refined elevation information about their building, and submit it to their agent to determine if it will benefit their rate. Additionally, ECs can help inform mitigation actions that will lower flood risk and will continue to be used for floodplain management building requirements and Community Rating System compliance.

Will surrounding properties be considered in setting height requirements for structures?
Height requirements for structures are a regulatory mechanism implemented through floodplain management regulations and building codes adopted at the community level. Risk Rating 2.0 does not change existing regulations in those areas.

Will raising the Increased Cost of Compliance (ICC) be part of the NFIP 2.0?
No, Risk Rating 2.0 continues to implement the same $30,000 of coverage available under ICC. These limits are not increasing.

Is there any change to the manner and value of what the insurance agent is paid?
Insurer compensation, including agent commission, is set forth in regulation. There has been no new rulemaking related to this. These are statutory regulations and FEMA does not have the authority to change them.

A lot of effort has been put into developing a new pricing policy to make the program sustainable. Are any changes anticipated on the expenditure side of the equation?
No, not at this time.

Currently there is a 40% reduction for a $10K deductible. Will that remain?
Selecting a higher deductible will continue to result in a reduction in premium cost, all other things being equal, under Risk Rating 2.0. However, the amount of price reduction is not a flat, fixed percentage applicable to all properties. Instead, the price reduction is tied to the limit and the replacement cost value of the structure. In this way, it more fairly reflects the amount of risk the policyholder has chosen to take onto themselves, as opposed to transferring it to FEMA, by selecting a higher deductible.

Will the Community Rating System (CRS) and discounts continue?
Yes. Participating in the Community Rating System (CRS) can help with reducing flood insurance rates as communities will continue to earn National Flood Insurance Program rate discounts of 5%-45%, based on their community classification. The discount will be uniformly applied to all policies throughout the CRS-participating communities, regardless of whether the structure is in the SFHA. The exception is for structures in violation of NFIP regulations as noted in the Federal Code of Regulations Title 44, Section (44 CFR 60.3). Currently, policyholders save an average of $162 per year, or 15%, on their flood insurance policy in participating communities.