Download RR2.0 FAQs and Tips PDF here 3/2022
Download RR2.0 FAQS Tips PDF here 1/2023
For detailed information on how premiums are calculated, please see the Risk Rating 2.0 Data and Methodology Report, the Appendix D Rating Factors, and the Premium Calculation Worksheet Examples, which are linked at the bottom of the Risk Rating 2.0 website. The Data and Methodology Report provides a technical overview of the rating plan. The Appendix D Rating Factors file contains the specific rating factors used for each of the rating variables (e.g., Distance to River, Foundation Type, and First Floor Height). The Premium Calculation Worksheet Examples provide specific examples of how premiums are calculated.
When a policyholder is reviewing their policy and the cost, they should review their deductibles and coverages with their agents. Additionally, policyholders can take various actions to reduce their premium. Most importantly, elevating the building can reduce the risk and the corresponding premium. Additional actions include elevating certain machinery and equipment and introducing flood openings. Further information about the benefits of these actions can be found on FloodSmart.gov within the NFIP Discount Explanation Guide. Finally, policyholders should speak with their agents about the individual benefits to their policy.
Policyholders can learn more about the various discounts available to them by reviewing the NFIP Discount Explanation Guide. Additionally, policyholders should speak with their agents about the individual benefits to their policy where agents can run various mitigation scenarios.
The nearest river and coast will both impact the premium, as they both contribute to flood risk. Distance alone does not determine flood risk, but a combination of distance, elevation, and territory together determine flood risk.
Distance to River is calculated as the geodesic distance to the nearest river feature (line or polygon) within a location’s corresponding HUC12. Distance to Coast is calculated as the geodesic distance to the nearest Coast polygon within 50 miles in coastal states. For more information on the data sources, please see Appendix A of the Risk Rating 2.0 Data and Methodology Report. For an example of how both measurements impact a premium calculation, please see the Premium Calculation Worksheet Examples.
FEMA recognizes and shares concerns about flood insurance affordability. Affordability was a concern under the legacy rating system, and affordability remains a concern under Risk Rating 2.0. For most policyholders who will see rate increases, in line with previous years, FEMA will transition their Risk Rating 2.0 policy premium gradually and within the 18% annual cap. The price of a flood insurance policy is an important signal of the flood risk a homeowner or renter faces, informing actions to mitigate and prepare for potential floods. Therefore, risk-based flood insurance premiums are appropriately more costly in areas that have the highest flood risk. However, risk-based premium rates are often burdensome for low- and moderate-income homeowners and renters. As a result, these households often go without insurance and do not recover as quickly or fully as their insured neighbors. If authorized by Congress, FEMA could establish a means-tested affordability program to allow for a focus on low- and moderate-income households, enabling FEMA to account for such policyholders’ ability to pay when setting their flood insurance premiums.
Where can I see the full-risk rate? The full-risk premium is provided on the declarations page. Additionally, the full-risk premium is information provided as a part of every new business, renewal, and endorsement quote. Policyholders can speak with their agent or carrier for more details.
How long am I on the glidepath? Many policyholders are already at their full-risk premium. When reviewing your policy, you can determine if you’re at the full-risk premium or not by looking at the difference between the discounted premium (which is the premium paid during the current term) and the full-risk premium. If the two premiums are the same, then you are at the full-risk premium. If the discounted premium is less than the full-risk premium then you are probably on a glidepath towards your full-risk premium. The year-by-year premiums will increase until you reach full risk premium according to your glidepath which can range from 5-25%, with most at 18%. However, as noted in the following question, the full risk premium can change over time.
Floods are highly uncertain, so FEMA uses the latest in flood modeling to create as accurate an understanding of flood risk as we can. Science and technology continue to develop and flood models continue to improve, and Risk Rating 2.0 is designed to incorporate these improvements as they develop.
FEMA is using a combination of models to support the development of rates, including state-of-the-art industry technology and the NFIP’s mapping data. Data sources being used include:
FEMA plans to review and update their rates on a regular basis to account for changes in risk, along with updates to the models and data used. Many things will change in future years (e.g., climate change, inflation, understanding of risk, changes to expenses/fees, policyholder population etc.). RR2.0 is designed to adapt to future conditions and changes in flood risk. This is accomplished in part by using graduated hazard to track the marginal year-by-year changes in risk with equivalent marginal changes in rates.
Risk Rating 2.0 uses multiple catastrophe models, allowing the rating system to adapt to new views of risk as each model is updated to reflect underlying changes in risk. In our multi-model approach, we will incorporate new versions of models, as they update to reflect changes in risk. The individual glidepath of the statutory rate increases helps policyholders transition to changes in risk over time, while still communicating both the current estimate of their full risk and the cost they are actually paying.
With every quote, FEMA responds to the carrier with the First Floor Height used to rate the policy. Additionally, this information is required to be shown on the policyholder’s Declarations Page. When providing the First Floor Height, FEMA will automatically calculate a First Floor Height but current or prospective policyholders can provide an Elevation Certificate to verify the First Floor Height using either Section C (which is completed by a licensed surveyor) or Section E (which can be completed by a licensed surveyor or the policyholder).
In developing Risk Rating 2.0: Equity in Action, FEMA partnered with the U.S. Army Corps of Engineers (USACE) to identify and use credible and consistently available information and methods to account for the level of risk reduction provided by levees. The rates for Risk Rating 2.0: Equity in Action were developed using an unprecedented level of available data and information. FEMA used readily available data from the U.S. Army Corps of Engineers (USACE)-maintained National Levee Database (NLD) and the Levee Screening Tool (LST). All levees identified in the NLD (Spring 2020) were considered for Risk Rating 2.0: Equity in Action. The NLD is a dynamic database that is continually updated and can be viewed by visiting https://levees.sec.usace.army.mil/.
The probability of overtopping and the probability of failing prior to overtopping were derived from five key data points. The five key data points used to assess the risk reduction provided by a levee include: levee centerline, levee crest profile, leveed area, overtopping frequency, and levee performance. For each levee, the overtopping frequency and levee performance were directly incorporated into the catastrophe models to determine average annualized losses. Leveed areas have a separate rating algorithm than non-leveed areas. The Levees in Risk Rating 2.0 document and the rating factors (see the Levee Quality tabs), including the probability of overtopping (e.g., 100-year), used in Risk Rating 2.0 for all leveed systems are available on the Risk Rating 2.0 Equity in Action website.
Premiums behind levees are based on a combination of the flood hazard, the levee itself, and how and where you built within the leveed area. There may be additional risk from pluvial flooding due to heavy rainfall or storm surge due to coastal flooding, and these factors can add to the flood risk and corresponding flood insurance premiums in areas behind levees.
Also, under the legacy NFIP rating plan, buildings behind accredited levees may have been eligible for a Preferred Risk Policy (PRP) that had an artificially lower premium. For some levees, that premium may have been appropriate, but not for all levees. With Risk Rating 2.0, PRPs are not appropriate since they typically didn’t account for the full flood risk that exists behind levees. Now we are accounting for that full risk under Risk Rating 2.0 and the premiums reflect it.
FEMA has not released average premiums, however, premium changes from the legacy system to Risk Rating 2.0 at the state, county, and zip code level are available on the Risk Rating 2.0 Equity in Action website. FEMA plans to release full risk premium information by state, county, and zip code in the near future.
NFIP debt is not a factor in FEMA’s rate setting. Risk Rating 2.0 does have a load for both ceded risk and retained risk. Premiums account for all expected costs of a risk transfer to prospective policyholders. They do not load for the past underwriting experience of prior policyholders.
FEMA rates do include provisions for the prospective likelihood of large events. These provisions include a ceded risk load to recognize the cost of reinsurance and a retained risk load to recognize the potential of future borrowing.
For the NFIP to be resilient to climate change, it will take more than setting appropriate premiums. It will also take establishing a Sound Financial Framework that brings understanding and clarity of roles in paying for NFIP losses.
As the NFIP is being considered for reauthorization, we look forward to working with the congress on implementing a resilient Sound Financial Framework for the NFIP.
FEMA recognizes and shares concerns about flood insurance affordability. Affordability was a concern under the legacy rating system, and affordability remains a concern under Risk Rating 2.0. Under the legacy rating system, almost all premiums would rise and continue to rise indefinitely. Under Risk Rating 2.0, increases are subject to an annual cap of 18% for most policyholders.
The price of a flood insurance policy is an important signal of the flood risk a homeowner or renter faces, informing actions to mitigate and prepare for potential floods. Therefore, risk-based flood insurance premiums are appropriately more costly in areas that have the highest flood risk. However, risk-based premium rates are often burdensome for low- and moderate-income homeowners and renters. As a result, these households often go without insurance and do not recover as quickly or fully as their insured neighbors.
Currently, FEMA does not have the authority to account for ability to pay when setting rates. If authorized by Congress, FEMA could establish a means-tested affordability program to allow for a focus on low- and moderate-income households, enabling FEMA to account for such policyholders’ ability to pay when setting their flood insurance premiums.
FEMA recognizes and shares concerns about flood insurance affordability. Affordability was a concern under the legacy rating system, and affordability remains a concern under Risk Rating 2.0. Under the legacy rating system, almost all premiums would rise and continue to rise indefinitely. Risk Rating 2.0 gives an offramp from these increases for owners of many smaller and lower risk homes, as they will now pay premiums commensurate to the risk of their property and will no longer be cross-subsidizing larger and higher risk homes. For formerly grandfathered policies, the distribution of rate changes under Risk Rating 2.0 is similar to that for other NFIP polices. Some will see a decrease, while most will see no change or a modest increase, and a relatively small number will see significant increases. Where a particular property falls in that distribution largely reflects the property’s flood risk and the cost of the structure.
The price of a flood insurance policy is an important signal of the flood risk a homeowner or renter faces, informing actions to mitigate and prepare for potential floods. Therefore, risk-based flood insurance premiums are appropriately more costly in areas that have the highest flood risk. However, risk-based premium rates are often burdensome for low- and moderate-income homeowners and renters. As a result, these households often go without insurance and do not recover as quickly or fully as their insured neighbors.
Currently, FEMA does not have the authority to account for ability to pay when setting rates. If authorized by Congress, FEMA could establish a means-tested affordability program to allow for a focus on low- and moderate-income households, enabling FEMA to account for such policyholders’ ability to pay when setting their flood insurance premiums.