Risk Rating 2.0 Dominates Second Senate Hearing on NFIP Reauthorization

On June 17, the U.S. Senate Committee on Banking, Housing and Urban Affairs held a second hearing on the reauthorization of the National Flood Insurance Program (NFIP). The first hearing was held in May.

The hearing featured the testimony of David I. Maurstad, the Deputy Associate Administrator of the Federal Insurance and Mitigation Administration (FIMA), which houses the NFIP within the Federal Emergency Management Agency (FEMA). Mr. Maurstad oversees the NFIP and the implementation of its new premium rating methodology, known as Risk Rating 2.0 (RR 2.0). The hearing mostly focused on the changes associated with RR 2.0, its rollout, and its anticipated effect on policyholders.

RR 2.0 will be implemented as to all new policies beginning on October 1, 2021. In April, FEMA announced that some existing policies would also gain access to RR 2.0 rates at that time. Specifically, FEMA will allow existing policyholders with renewal dates between Oct. 1, 2021, and April 1, 2022, to renew their policies using RR 2.0 rates, if doing so would be financially advantageous to them. Based on renewal date, then, among the policyholders for whom RR 2.0 will represent a decrease in premium, some policyholders will be offered RR 2.0 rates ahead of other policyholders.

During the hearing, several senators questioned FEMA’s readiness for the rollout of RR 2.0 and potentially precipitous premium increases for NFIP policyholders. FEMA has said that the new methodology will increase premiums for about 80 percent of policyholders and decrease premiums for about 20 percent of them. Senators on the Banking Committee expressed concern about how the increases will affect their constituents. One committee member, Senator John Kennedy (R-LA), has introduced legislation that would require Congress to approve RR 2.0 before it goes into effect.

PIA shares FEMA’s stated goal of providing policyholders with the best available risk-based price for their policies, and we are working with FEMA to ensure as smooth a rollout of RR 2.0 as possible. PIA believes the RR 2.0 methodology will improve the NFIP’s financial stability and provide policyholders with a more accurate understanding of their risk. At the same time, we want to ensure FEMA implements the new rating system in a way that is workable for both agents and consumers.

Write-Your-Own Rate Targeted Again

A few senators repeated the criticisms they expressed at the first Senate Banking hearing on the NFIP last month. Specifically, they questioned the role of, and compensation provided to, insurance carriers, called Write-Your-Owns (WYOs), which administer the NFIP. PIA strongly opposes any proposal that would reduce the role of WYOs in the program and maintains our longstanding opposition to a reduction in the WYO reimbursement rate, which is the vehicle by which independent insurance agents are compensated for selling NFIP policies.

During yesterday’s hearing, we were pleased to see several senators recognize the important role independent agents play in delivering the program. PIA shares Administrator Maurstad’s hope that the RR 2.0 rating system will be easier for agents to understand and will encourage agents to sell NFIP policies. We have always shared FEMA’s goal of increasing the take-up rate of flood insurance, which would protect more properties against the risk of flood.

PIA is actively engaged with both the House and Senate on NFIP reauthorization, and we are in continued communication with FEMA regarding the rollout of RR 2.0.