Pew Commends National Flood Insurance Program for Connecting Premiums and Flood Risk

New Risk Rating 2.0 system will bring costs down for roughly 1.2 million policyholders

Flood Insurance Program Connects Premiums and Flood Risk
Houston flooding
Floodwaters inundated residential neighborhoods in Houston after Hurricane Harvey struck on Aug. 29, 2017.
Marcus Yam Los Angeles Times

WASHINGTON—The Pew Charitable Trusts applauds the implementation today of Risk Rating 2.0: Equity in Action, the Federal Emergency Management Agency’s new system that sets National Flood Insurance Program premiums using industry best practices, up-to-date flood data, and catastrophic modeling to better reflect each property’s unique flood risk. FEMA launched the system for new policies on Oct. 1, 2021, and today begins expanding its use to existing policies.

Laura Lightbody, director of Pew’s flood-prepared communities project, issued the following statement:

“For far too long, flood insurance premiums were based on an antiquated system that often led to many property owners not paying enough for flood insurance while others paid too much. Risk Rating 2.0 aims to fix that imbalance by giving policyholders fairer rates and a more accurate assessment of their flood risk. The information will also promote action to mitigate those risks. 

“This new system relies on up-to-date data to align premiums with a property’s real risks, including how close it is to water, its elevation, and the cost to rebuild. This leads to more equitable premiums: Property owners with higher risk and projected repair costs pay more and those with lower risk and repair costs pay less.   

“In fact, under Risk Rating 2.0, about 20% of current policyholders will see a decrease in their flood insurance rates over the coming year, while the majority will see a modest increase of $10 or less a month on average. By comparison, under the old system, all policyholders would have faced increases this year. 

“This is a clear signal by the federal government to homeowners and communities about the cost of living in flood-prone areas and an important first step toward encouraging less risky development and safer communities.” 

Flooded neighborhood
Flooded neighborhood
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FEMA's New Flood Insurance Policy Is Fairer

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For decades federally backed flood insurance rates have been calculated using a dated system, based on an old understanding of flood risk. What that has meant is that some policyholders covered by the National Flood Insurance Program (NFIP) whose properties have lower flood risk have been paying too much while others with higher flood risk haven’t been paying enough.

A car sits on a flooded garage of a house following a night of heavy wind and rain from the remnants of Hurricane Ida on September 02, 2021 in Mamaroneck, New York
A car sits on a flooded garage of a house following a night of heavy wind and rain from the remnants of Hurricane Ida on September 02, 2021 in Mamaroneck, New York
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The Impacts of Federal Flood Insurance Rate Changes

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New interactive maps created by the Association of State Floodplain Managers (ASFPM), with support from The Pew Charitable Trusts, are helping bring clarity to how Risk Rating 2.0: Equity in Action, the Federal Emergency Management Agency’s updated rate-setting methodology, will affect flood insurance rates.

Flooded community
Flooded community

The National Flood Insurance Program

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More than half a century after its creation, the National Flood Insurance Program (NFIP)—which provides federally backed coverage for homeowners and small businesses in 23,000 communities—is failing to meet its goals of lowering federal spending on disaster response and improving flood plain management.