The National Flood Insurance Program (NFIP), which is administered by the Federal Emergency Management Agency (FEMA), is the primary source for flood insurance in the United States. Over the past few years, FEMA has been preparing to update the NFIP’s risk rating process using a methodology known as Risk Rating 2.0 (RR 2.0).
Risk Rating 2.0 will assign premium rates to properties using substantially more granular data, aligning rates more closely to the property’s actual level of flood risk. The implementation of RR 2.0 will move the NFIP toward financial solvency while also giving policyholders more information about their property’s true flood risk.
PIA supports RR 2.0 and views its implementation as progress toward strengthening the NFIP. This progress will serve consumers well; according to FEMA’s National Rate Analysis, about 23 percent of existing policyholders can expect their premiums to go down using RR 2.0.
On August 1, FEMA is scheduled to make its rating engine available to all Write-Your-Own (WYO) companies, informally kicking off the RR 2.0 process. The new rates will take effect on October 1, 2021 for new business and for some existing policies. In its most recent draft Industry Transition Memorandum, FEMA announced that existing policies with renewal dates between October 1 and March 31 will be permitted to transition to the new rates at their upcoming renewal, if the new rate is more favorable (i.e., lower) to the policyholder than their existing or “legacy” rate. The remaining NFIP renewals (those whose rates are staying the same or increasing in the new system and those whose renewals are scheduled for after April 1) will transition to the new rates at their next renewal, but no sooner than April 1, 2022.
Concerns About Implementation
For the past several years, PIA has been engaging with FEMA on the many aspects of RR 2.0 that will affect agents and consumers. Unfortunately, our concerns about FEMA’s ability to provide agents with adequate information and preparation for the transition have only intensified as the August 1 rating engine launch date approaches and the effective date of October 1 looms. Agents may be blamed for problems beyond their control, like the extent of their training on and access to the rating engine. The consumer experience will depend on agent familiarity with the new system, and, to date, FEMA has not provided sufficient information and training to agents.
As the rollout of Risk Rating 2.0 approaches, PIA continues to meet with representatives from FEMA in which we ask questions, highlight our concerns, and offer recommendations on how to implement RR 2.0 successfully for agents and consumers. We will continue to do so in the coming days and weeks.