Earlier today, PIA became the first national insurance association to ask Federal Emergency Management Agency (FEMA) administrator Deanne Criswell to delay the implementation of Risk Rating 2.0.
In previous blog posts, we have discussed the value of the new Risk Rating 2.0 (RR 2.0) methodology, which is scheduled to go into effect on Oct. 1, in pricing National Flood Insurance Program (NFIP) policies. We have also addressed some of the many concerns we have about the implementation process thus far.
PIA supports the NFIP’s progression toward risk-based pricing; the use of RR 2.0 will allow the NFIP (eventually) to apply actuarially sound rates to the individual properties it covers. The NFIP will thus more accurately reflects individual properties’ level of flood risk. RR 2.0 will make the NFIP more solvent and better able to respond to flood losses when they occur. Plus, its use of new and more granular rating factors will ultimately make the new methodology a more accurate predictor of flood losses and allow the NFIP to compete more effectively with the private market.
However, the prodigious efforts of the Write Your Own (WYO) carriers, vendors, and agents were not enough to overcome the tremendous gaps in FEMA’s rollout process. RR 2.0 is not ready for its scheduled Oct. 1 implementation. PIA is not alone in reaching this conclusion; members of Congress on both sides of the aisle and in both the House and the Senate have concluded that RR 2.0 is not ready for implementation on Oct. 1.
Evidence of this flawed process include:
- The effective unavailability of the rating engine to agents until Sept. 1, despite FEMA promising widespread availability, first on Aug. 1 and then on Aug. 16
- The routine failure of the FEMA rating engine’s functionality, which continues to lead to the issuance of provisional (temporary) rates. Those provisional rates must then be reissued when the system is back online, exponentially multiplying the work of NFIP agents during the height of an already busy and potentially historic Atlantic hurricane season
- The RR 2.0 system producing unexpectedly high or low rates, surprising agents and leaving them unable to explain RR 2.0 rates to policyholders or prospective policyholders
- No explanation of the breakdown of how the rating engine produces rates
- Instructions to NFIP policyholders to contact their agents to see if they are eligible for an early transition to RR 2.0. An average of 23% of existing NFIP policyholders will see their rates decrease using RR 2.0. However, of that 23%, only those with renewal dates between Oct. 1 and March 31, which we expect to be just under half, will be eligible for early access to lower rates. Even within the 23% of policyholders whose rates will go down, more than half of them won’t gain access to those better rates until their policies renew—on or after Apr. 1, 2022. That doesn’t account for the 77% of policyholders whose rates will stay the same or increase. The bottom line is that most policyholders who expect their agents to secure them better rates beginning Oct. 1 will be disappointed.
- Confusion arising from the need for agents and WYOs to, from Oct. 1, 2021 to March 31, 2022, consult both the April 2021 Flood Insurance Manual (FIM) with October 2021 Update and the new, RR 2.0-specific Oct. 2021 FIM from Oct. 1, 2021 to Mar. 31, 2022
- The cumulative effect of these problems on property purchases and sales
Over the past couple of years, as RR 2.0 was being developed and FEMA’s frequently–shifting timeline was repeatedly disseminated and then dissolved, we frequently expressed concern to FEMA about the role of agents in the development and implementation of RR 2.0. We requested robust training and education to enable agents to guide policyholders through this unprecedented change in NFIP rates. Unfortunately, FEMA hasn’t provided agents with adequate training or education. In fact, since June, FEMA has offered agents dozens of opportunities to view one agent-focused RR 2.0 webinar, “Risk Rating 2.0 Equity in Action Webinar for Insurance Agents.” The content of that webinar has barely changed over the past 3 months.
There is currently a bipartisan and bicameral push in Congress to delay RR 2.0. However, the introduced bills and letters to Administrator Criswell all have one thing in common: They seek a delay until Congress decides it is ready for RR 2.0 to be implemented. While we share the desire for a delay, we have concerns about making the implementation of RR 2.0 dependent on Congressional action.
We support the actuarial underpinnings of the RR 2.0 methodology, and we want FEMA to implement it when the system can be fully operational, and agents are prepared to deliver this improved product. As we’ve seen too many times before, if the NFIP is at the mercy of Congressional action, we may be waiting forever for RR 2.0. We don’t want it to be cast aside because its implementation has been rocky; we want it to be implemented seamlessly, and we believe another few months will provide FEMA with the time to make it happen.
PIA firmly believes that RR 2.0 will ultimately better serve current and prospective policyholders. That belief has led us to conclude that RR 2.0 must be postponed until Apr. 1, 2022 for all policies, both new and renewing, so that these issues can be properly addressed. PIA wants RR 2.0 to succeed. Agents, policyholders, vendors, WYOs, and other stakeholders deserve an implementation experience that matches the quality of the RR 2.0 methodology itself.
If you would like to share your experiences of the RR 2.0 transition process with PIA, please contact Lauren Pachman at Lpachman@pianational.org. We will be sharing members’ RR 2.0 experiences with FEMA in the weeks to come.