On March 18th, FEMA announced it would be adopting a new system, dubbed Risk Rating 2.0, for determining rates for the National Flood Insurance Program (NFIP).

FEMA currently determines flood insurance rates using a system that has remained largely unchanged since the 1970s. Homeowners are charged based on their location within the 100-year floodplain (areas defined as having a 1% chance of flooding each year). FEMA officials believe that the new system will better reflect real risk by utilizing modern technology to assess and map properties at a granular, individual property scale. FEMA will also consult with private sector flood maps and calculations which account for flooding likely to occur from rising sea levels, storm surges, and intense rainfall.

Most flooding during Hurricane Harvey occurred outside the floodplain- where people were not required to buy insurance. (U.S. Air National Guard photo by Staff Sgt. Daniel J. Martinez)
Most flooding during Hurricane Harvey occurred outside the floodplain- where people were not required to buy insurance. (U.S. Air National Guard photo by Staff Sgt. Daniel J. Martinez)

The changes come after a slew of devastating hurricanes and floods have hit the U.S. in recent years. These include Hurricane Harvey, where 70-80% of flood victims were uninsured (largely because their homes fell outside the 100-year floodplains), and the catastrophic flooding across the Midwest that took place just the week before the announcement of the new system.

The NFIP has long been considered unsustainable because it pays out more than it receives in premiums. In 2017, the triple whammy of Hurricanes Harvey, Irma, and Maria left the NFIP with over $30 billion in debt. Though the new system was not created to increase or decrease revenue according to David Maurstad, the FEMA deputy associate administrator for insurance and mitigation, since it may cause more properties to be in designated flood zones and therefore require flood insurance, it may increase NFIP revenue.

Many praise the change, believing that more accurate flood maps would inform communities of their actual risk and would help close the loophole that incentivizes building in flood zones. FEMA flood maps are used in city planning and more accurate maps could help communities determine where to invest in flood prevention measures.

On the other hand, there are many more who are worried about how the changes might affect premiums in their communities, especially those in low-lying coastal areas such as in Louisiana, South Carolina, and the Florida Keys. The high cost of premiums is one of the main barriers for people who are not insured, and higher rates could send participation plummeting. Increasing the cost of flood insurance may also depress property values because a high flood premium indicates to potential buyers the likelihood of flooding. “Many people would have no means to move or pay higher rates,” said Louisiana State professor of Environmental Studies Nina Lam, “We have to consider fairness of the issue, too.”

FEMA believes that the new policy will have more transparent and understandable costs which will increase the amount of people insured. The new system also aims to increase participation by accounting for the cost of rebuilding in its insurance rates, addressing an inequity which requires low-value homes and high-value homes in the same area to pay the same rate.

The announcement of Risk Rating 2.0 coincides with some lawmakers attempting to update and reauthorize the program, which has has been running under several short-term extensions since its long-term reauthorization lapsed in 2017. California Representative Maxine Waters (D) has been collaborating with Senator John Kennedy of Louisiana (R) with a shared focus on affordability of insurance. Waters has proposed a program that would offer discounted insurance rates to low-income homeowners. Though previous attempts to reform NFIP legislation have failed due to public backlash, Americans have become increasingly aware of of the devastating effects of floods in the wake of several intense storms, which is now helping get these reforms off the ground.

The new rates will be established by April 2020 and go into effect On October 1st, 2020. Representative Garret Graves (R) of Baton Rouge hopes that the flood insurance program will spur more discussion on flood resilience and who is responsible for risk. “We’re at the bottom of one of the largest watersheds in the world… The vulnerability came to us; we have no control over it. Do we need to charge more for it in Louisiana?”



Sources and Further Readings

FEMA changes for flood insurance program put burden on riskiest properties – NOLA.com

Trump administration to put new price tag on flood insurance, risking backlash – Politico

Majority of Harvey victims did not have flood insurance: Experts – Insurance Business America

Why Is There Flooding in Nebraska, South Dakota, Iowa and Wisconsin? – New York Times

As FEMA rewrites flood insurance rules, ‘the devil’s in the details’ – NOLA.com

SC’s flood insurance rates could see massive change with new FEMA program – The Post and Courier

What FEMA Floodplain Maps Mean for the Keys – Keys Weekly

Proposed changes to US flood insurance program could hike rates – Real Estate Boston

Flood insurance changes likely to impact Louisiana, but there’s hope this update is positive – The Advocate