Senators Underscore Risk Rating 2.0 Concerns for Ongoing Government Accountability Office (GAO) Assessment
On June 28, Senators Cassidy, Hyde-Smith, and Wicker wrote a letter to the U.S. Government Accountability Office (GAO) requesting that certain questions be considered in the GAO’s assessment of the methodology used to develop the Risk Rating 2.0. A GAO study is expected to be released this year, and FEMA has previously indicated their ongoing cooperation. The Senators, while noting that the study “cannot be a substitute for FEMA making the method totally transparent and implementing it under the rulemaking process of the Administrative Procedure Act,” outline specific questions that should be answered to produce a thorough study of the program, with the major question of, “To what extent is Risk Rating 2.0 actuarially sound and transparent?” Additional requests and recommended questions include:
- Report the error bands (confidence intervals) from the generalized linear model results for all the rating factors by region. Based on these error bands, evaluate the usefulness of the regressions for estimating flood insurance premiums with an accurate underlying estimate of expected annual damages.
- Evaluate the soundness of estimating rating factors on a regional, as opposed to a flood plain, basis together with discussion of the errors and biases that such an approach may introduce. FEMA reports estimating rating factors based on geographic data that spans Texas to North Carolina rather than on more granular considerations of floodplain relationships.
- Collect a significant sample of property-specific average annual damages using traditional hydrology/hydraulics models from U.S. Army Corps of Engineers (USACE) studies (adjusted for price levels) and compare those results with the same property-specific average annual damage estimates calculated within Risk Rating 2.0.
- Evaluate application of transparent and peer reviewed traditional methods (USACE, Hazard Mitigation) for computing property-specific average annual damages to compute actuarial premiums as compared with the opaque Risk Rating 2.0 methods.
- Evaluate the economic impact analysis in FEMA’s most recent NFIP programmatic environmental impact statement, especially the estimates of impacts on property values. Are these estimates economically sound and do they accurately capture the impacts of eliminating subsidized premiums on property values? Do these estimates accurately depict the impact of the entire Risk Rating 2.0 approach (as opposed to merely eliminating subsidies) on property values?
- What are the immediate and long-term effects of eliminating grandfathered premiums on home values? What impact would this have on local property tax collections by municipalities?
- What is GAO’s estimate of the expected attrition from the program from increasing cost on policyholders who do not have a mandated purchase requirement or others who simply cannot afford to pay the proposed rates?
- Does FEMA have the clear Congressional authority to make the draconian premium increases in Risk Rating 2.0?
- Should FEMA implement Risk Rating 2.0 through the Administrative Procedure Act?
- Should FEMA conduct an independent peer review of all models and methods in Risk Rating 2.0 as required by the Office of Management and Budget guidance for the Information Quality Act?