On April 1, FEMA announced that it will phase in a price-setting method in the National Flood Insurance Program (NFIP) that will determine new premiums based on a property’s value, risk of flooding and other factors.
In the past, FEMA based risk ratings and premiums on two factors: whether a home was located inside a severe flood zone, and the elevation of the home within that zone. This methodology was developed in the 1970s. The NFIP currently serves around 5 million homes, and although premiums for these homes have steadily increased over the years, the program is more than $20 million in debt due to the uptick in climate change-related sea-level rise and storms, which have led to more widespread flooding.
With Risk Rating 2.0, FEMA will consider factors like rebuilding costs, flood frequency, distance to a water source and other flood risk variables to equitable distribute premiums across all policyholders based on home value and unique flood risk. This change marks the first update to FEMA’s pricing methods in 50 years, and is based on updated technology and FEMA’s evolving knowledge of flood risks.
Effective October 1, 2021, for new policies and April 1, 2022, for existing policies, the agency expects to see an increase in premiums for 4% of policyholders. None will face more than an 18% annual increase.