FEMA is focused on building a culture of preparedness by closing the insurance gap. Recognizing that purchasing flood insurance can be confusing and time-consuming, the National Flood Insurance Program (NFIP) is redesigning its risk rating plan to improve the policyholder experience. We are committed to a NFIP that people value and trust; that is fair, understandable, and less complex to navigate.
Risk Rating 2.0 aims to accomplish this by leveraging industry best practices and current technology to deliver rates that are transparent, easy to understand, and better reflect a property’s unique flood risk.
Risk Rating 2.0 will fundamentally change the way FEMA rates a property’s flood risk and prices insurance. The current rating methodology has not changed since the 1970s. But since then, technology has evolved and so has FEMA’s understanding of flood risk. Currently, FEMA develops rates based predominantly on Flood Insurance Rate Map zone and Base Flood Elevation. With Risk Rating 2.0, FEMA is pairing state-of-the-art industry technology with the NFIP’s mapping data to establish a more comprehensive understanding of risk at both the community and individual level.
Risk Rating 2.0 will help customers better understand their flood risk and provide them with more accurate rates based on their unique risk. This will include determining a customer’s flood risk by incorporating multiple, logical rating characteristics–like different types of flood, the distance a building is from the coast or another flooding source, or the cost to rebuild a home. The new rating plan will also aim to ensure customers will no longer face dramatic rate increases during map changes or at the edge of flood zones. By reflecting the cost to rebuild, the new rating plan will also aim to deliver fairer rates for owners of lower-value homes.
FEMA is building a new rating engine to help agents easily price and sell policies. It will also allow policyholders to better understand their property’s flood risk and how it is reflected in their cost of insurance.
Risk Rating 2.0 will comply with existing statutory caps on premium increases. This will help transition policyholders who may face otherwise substantial rate increases.
As we complete our analysis of rate impacts, we pledge to keep interested parties and our stakeholders informed. Our goal through Risk Rating 2.0 is to help people better understand their flood risk so they can make informed decisions when it comes to protecting the financial investments they have made in their homes.