CSFI Releases White Paper Addressing Risk Rating 2.0 Impacts on Premium Affordability
The Coalition for Sustainable Flood Insurance (CSFI) today convened members from across the country to usher the release of a white paper – An Evaluation of Risk Rating 2.0 Impacts on National Flood Insurance Program Affordability. This work communicates the causes and effects of rising flood insurance premiums, by synthesizing academic research, government reports, and public datapoints. The full paper and an executive summary, each outlining actionable recommendations, are now available on www.csfi.info.
“Families were already struggling to pay their flood insurance premium, and it’s now clear Risk Rating 2.0 has only made this situation worse,” said U.S. Senator Bob Menendez (D-NJ). “With more frequent and intense storms expected over the coming years, more uninsured homes will be a recipe for financial disaster for working- and middle-class families across the country.”
Risk Rating 2.0, FEMA’s new pricing methodology for the National Flood Insurance Program (NFIP), was implemented for new policies on October 1, 2021 and for existing policies on April 1, 2022. This represents the first major overhaul of flood insurance rates since the NFIP was created more than 50 years ago. According to FEMA, 77 percent of policyholders nationwide will see premiums increase with the implementation of Risk Rating 2.0.
“Whoever did Risk Rating 2.0 either has no clue or chose to ignore its impact upon real-life policyholders,” said U.S. Senator Bill Cassidy, M.D. (R-LA). “This begins with allowing homeowners and developers to know what rates actually will be. Risk Rating 2.0 has got to change.”
Release of the white paper follows media coverage of ongoing affordability challenges and a decline in program participation. The Associated Press suggests that Risk Rating 2.0 could cause 20% of policyholders to drop coverage, based on internal FEMA studies, and E&E News has identified that 425,000 policyholders have already discontinued coverage under Risk Rating 2.0.
“We aim for this paper to be useful to FEMA in the administration of the NFIP and to Congress in NFIP’s authorization,” said Michael Hecht, President & CEO of Greater New Orleans, Inc. “CSFI is eager to empower public policy development and encourage transparent development of flood insurance rates through our proposed recommendations and continued collaboration with all stakeholders. Together, we can reform and administer an affordable and sustainable program that protects American economies and hard-working communities.”
The white paper – produced by CSFI in collaboration with C. Scott Canady of Tambala Strategy, LLC – provides an initial overview of Risk Rating 2.0, in the context of consumer behavior and NFIP’s history. This analysis makes both short- and long-term policy and administrative recommendations, in consideration of affordability proposals made to date. Furthermore, it includes a literature review; applications of NFIP price, participation, and flood risk data; and evaluations of Risk Rating 2.0’s potential impact on housing affordability in certain markets – Texas, Florida, Ohio, South Carolina – and the country.
Sen. Menendez elaborated, “We need to focus on making premiums more affordable by establishing a voucher program based on housing burden to bring more policyholders into the program, while also reigning in how high FEMA can increase a premium in a year to ensure families aren’t pushed out. We should also be making robust investments in mitigation and risk mapping to address the long-term impacts of flooding. My bipartisan NFIP-RE Act will do just that, while improving the long-term solvency of the program. I will continue to work with my Senate Banking colleagues to advance this commonsense bill as soon as possible.”
Key recommendations from the paper include:
- FEMA should disclose the factor by which premiums are changing for NFIP policies by ZIP code, county, and state and disclose the estimated RR2.0 full-risk premium and total policy costs
- FEMA should clearly disclose planned premium rate increase velocities in RR2.0 to remove uncertainty for insureds and allow households and housing markets to prepare for higher NFIP policy costs.
- FEMA should counter the known negative relationship between price and participation by adopting a low-rate annual premium increase plan until Congress authorizes an affordability framework.
- Legislators should carefully consider the limitations of affordability frameworks relying solely on income ratios to determine program eligibility. Housing burden should be an additional tool to target and equitably distribute assistance to areas with greater housing burdens
- Legislators and stakeholders should continue to evaluate affordability program design, pursue legislative enactment of an affordability program, and clearly communicate desired NFIP affordability public policy implementation outcomes to FEMA.
“I commend CSFI for doing the research and clearly demonstrating what so many of us have been saying about Risk Rating 2.0 since it was announced,” said Louisiana Insurance Commissioner Jim Donelon. “Without changes to the NFIP’s plan, these premium increases will cause many Louisiana policyholders — especially lower income households in the most flood-prone areas — to drop their flood insurance altogether.”
For over nine years, Greater New Orleans, Inc. has led the Coalition for Sustainable Flood Insurance (CSFI), a national coalition of 250 organizations across 35 states with a focus on effective and affordable flood insurance for American homeowners. The coalition has focused on advocating for a stronger policy framework for NFIP that advances risk assessment, affordability, mitigation, and program participation.
“Buying a home is probably the single largest financial investment anyone will make in their lifetime, so it’s essential to protect that investment with the appropriate insurance” said David Favret, President of the New Orleans Metropolitan Association of REALTORS. “What many homeowners don’t realize is that property insurance does not cover flooding events, therefore they don’t often have a separate flood insurance policy.”
Moving forward, CSFI will continue to advocate for smart and effective policy making that will strengthen the integrity of the NFIP while ensuring that Americans can afford the premiums that protect their homes.