FEMA Revamping the NFIP’s Risk Rating System

Based in Metairie, Louisiana, Nielsen & Treas, LLC, is a law firm that focuses on flood insurance litigation. For more than three decades, Nielsen & Treas, LLC, has helped insurance clients to navigate the Federal Emergency Management Agency’s (FEMA) National Flood Insurance Program (NFIP), which provides businesses, renters, and property owners with federally backed coverage for flood damage. For the first time since the 1970s, FEMA plans to change the way that the NFIP rates a property’s flood risk and calculates insurance premiums.

According to FEMA, the NFIP’s current rating model can make the process of purchasing flood insurance a complicated and time-consuming process, an issue that the planned restructuring aims to address. Known as Risk Rating 2.0, the effort was announced by FEMA in September 2019. According to FEMA, the new methodology will increase transparency, offer fairer and easier-to-understand pricing rates, and allow insurance agents to more easily generate quotes for consumers. Additionally, FEMA intends for it to improve the accuracy of risk ratings and help consumers to become more risk-informed through individualized property assessments.

In order to accomplish these goals, FEMA is developing Risk Rating 2.0 using current technology and industry best practices. The data being used to develop it comes from multiple sources, including catastrophe models, replacement-cost data, and federal government agencies such as the United States Geological Survey and the National Oceanic and Atmospheric Administration. FEMA is also utilizing the NFIP’s existing mapping data.

Currently, the NFIP bases flood risk levels and premiums primarily on a building’s elevation and flood-zone location. According to FEMA, under the new rating system, risk-rating plans will also factor in rebuilding costs, different types of flood risks, the distance to the source of flooding, and other characteristics. Furthermore, it will adhere to statutory limits on premium increases.

FEMA plans to implement Risk Rating 2.0 on October 1, 2021.