Risk Rating 2.0: Equity in Action
FEMA is updating the National Flood Insurance Program‘s (NFIP) risk rating methodology through the implementation of a new pricing methodology called Risk Rating 2.0. The methodology leverages industry best practices and cutting-edge technology to enable FEMA to deliver rates that are actuarily sound, equitable, easier to understand, and better reflect a property’s flood risk.
FEMA is conscious of the far-reaching economic impacts COVID-19 has had on the nation and existing policyholders and is taking a phased approach to rolling out the new rates.
Current National Flood Insurance Program policyholders can contact their insurance company or insurance agent to learn more about what Risk Rating 2.0-Equity in Action means to them.
Beginning Oct. 1, 2021, new policies were subject to the new rating methodology. Also beginning Oct. 1, existing policyholders eligible for renewal were able to begin taking advantage of immediate decreases in their premiums.
All remaining policies renewing on or after April 1, 2022, are subject to the new rating methodology.
FEMA continues to engage with Congress, its industry partners, and state, local, tribal and territorial agencies to ensure a clear understanding of these changes.
Why FEMA is Undertaking Risk Rating 2.0
FEMA is committed to building a culture of preparedness across the nation. Purchasing flood insurance is the first line of defense against flood damage and a step toward a quicker recovery following a flood.
Since the 1970s, rates have been predominantly based on relatively static measurements, emphasizing a property’s elevation within a zone on a Flood Insurance Rate Map (FIRM).
This approach does not incorporate as many flooding variables as Risk Rating 2.0. Risk Rating 2.0 is not just a minor improvement, but a transformational leap forward. Risk Rating 2.0 enables FEMA to set rates that are fairer and ensures rate increases and decreases are both equitable.
FEMA is building on years of investment in flood hazard information by incorporating private-sector data sets, catastrophe models, and evolving actuarial science.
With Risk Rating 2.0, FEMA now has the capability and tools to address rating disparities by incorporating more flood risk variables. These include flood frequency, multiple flood types—river overflow, storm surge, coastal erosion, and heavy rainfall—and distance to a water source along with property characteristics such as elevation and the cost to rebuild.
Currently, policyholders with lower-valued homes are paying more than their share of the risk while policyholders with higher-valued homes are paying less than their share of the risk. Because Risk Rating 2.0 considers rebuilding costs, FEMA can equitably distribute premiums across all policyholders based on home value and a property’s unique flood risk.
What’s Not Changing Under Risk Rating 2.0
We are upholding statutory requirements by:
Limiting Annual Premium Increases
Existing statutory limits on rate increases require that most rates not increase more than 18% per year.
Using Flood Insurance Rate Maps (FIRMs) for Mandatory Purchase and Floodplain Management
FEMA’s flood map data informs the catastrophe models used in the development of rates under Risk Rating 2.0. That is why critical flood mapping data is necessary and essential for communities. It informs floodplain management building requirements and the mandatory purchase requirement.
We are maintaining features to simplify the transition to Risk Rating 2.0 by offering premium discounts to eligible policyholders. This means:
- FEMA is continuing to offer premium discounts for pre-FIRM subsidized and newly mapped properties.
- Policyholders are still able to transfer their discount to a new owner by assigning their flood insurance policy when their property changes ownership.
- And discounts to policyholders in communities who participate in the Community Rating System will continue. Communities can continue earning National Flood Insurance Program rate discounts of 5% – 45% based on the Community Rating System classification. However, since Risk Rating 2.0 does not use flood zones to determine flood risk, the discount will be uniformly applied to all policies throughout the participating community, regardless of whether the structure is inside or outside of the Special Flood Hazard Area.
With the implementation of Risk Rating 2.0, FEMA delivers rates that more accurately reflect flood risk and ensure the National Flood Insurance Program will be here for this generation and generations to come. National Flood Insurance Program in Mississippi A significant part of FEMA’s NFIP Transformation is Risk Rating 2.0, which will fundamentally change the way FEMA prices insurance and determines an individual property’s flood risk. Risk Rating 2.0 is equity in action.
With Risk Rating 2.0, individuals will no longer pay more than their share in flood insurance premiums based on the value of their homes. Roughly two-thirds of policyholders with older pre-FIRM homes will see a premium decrease. FEMA will reduce disaster-related suffering and disaster-related costs in Mississippi through insurance and the mitigation of flood risks by leveraging advances in industry best practices, technology, and flood risk modeling. FEMA’s core mission and programs continue to emphasize purchasing flood insurance and pursuing mitigation options to achieve resiliency. While there are many policies in force in Mississippi, there are still opportunities to increase participation in the program to improve resilience.
Learn more at fema.gov
Under the current methodology, all NFIP policyholders have been subject to premium increases every year. Risk Rating 2.0, from a premium increase perspective, does not deviate significantly from the current methodology except annual increases will eventually stop under Risk Rating 2.0 once the full-risk rate is realized. Premium increases will also be subject to the 18% per year cap set by Congress for most policies. 96% of current policyholders’ premiums will either decrease or increase by $20 or less per month under Risk Rating 2.0.
What can you do?
Reduce Mississippi gulf coast flood insurance rates. The state plays a key role in leading mitigation efforts through coordination and collaboration with communities. States, local communities, tribes, territories, and individuals should prioritize mitigation projects, mitigation planning, and the adoption or strengthening of building codes and zoning regulations to improve resilience and reduce flood insurance rates.
Participate in the Community Rating System (CRS)
Communities will continue to earn National Flood Insurance Program rate discounts of 5% – 45% based on the Community Rating System classification. The discount will be uniformly applied to all policies throughout the participating community, regardless of whether the structure is in the Special Flood Hazard Area (SFHA). Currently, policyholders in CRS communities save an average of $162, or 15%, per year on their flood insurance policy. To date, there are 24,500 communities that participate in the Community Rating System. As of Oct. 1, 2020, 31 communities in Mississippi participate in the Community Rating System.
To view the list of participating communities and their current class rating, visit www.fema.gov/community-rating-system.
Apply for Hazard Mitigation Assistance Grants
Hazard Mitigation Assistance (HMA) grants are available for pre-disaster and post-disaster mitigation projects. As of October 1, 2021 for new policyholders and April 1, 2022 for existing policyholders, projects involving installing flood openings per 44 CFR 60.3 criteria, elevating structures, and elevating machinery and equipment above the first floor (i.e. hot water heaters) may reduce rates both inside and outside SFHAs. For detailed information, refer to the “Risk Rating 2.0 Equity in Action” fact sheet.
|HMA Program Program Information Flood Mitigation Assistance (FMA)||• Pre-Disaster grant program
• Obligations of $1.4 billion from 2004 to 2021
• More information
|Hazard mitigation Assistance Grant Program (HMGP) and HMGP Post Fire||• Post-disaster grant program
• Obligations of $15.3 billion from 1990 to 2021
• More information
• More information
|Building Resilient Infrastructure and Communities (BRIC)||• Pre-disaster grant program
• Obligations of $1.2 billion from 2020 to 2021
• More information
Take Action to Reduce Flood Risk
States, tribes, territories, local communities, and individuals can all take mitigation actions to reduce their flood risk and potentially reduce their flood insurance premiums.
- Promote/expedite pre-disaster HMA grant applications for FMA and BRIC.
- Prioritize, plan for, and take advantage of HMGP funding after a disaster occurs.
- Offer tax credits for flood mitigation.
- Establish and maintain a revolving loan fund for flood risk reduction projects.
- Promote higher regulatory standards for development. Learn more at fema.gov
- Participate in the Community Rating System.
- Prioritize mitigation grants for owners of Severe Repetitive Loss and Repetitive Loss properties.
- Apply for Hazard Mitigation Assistance grants through the state.
- Adopt and enforce building codes and zoning regulations.
- Buy flood insurance.
- Install flood openings or elevate the home, and elevate all machinery and equipment to a higher floor such as hot water heaters.
- After a flood, NFIP policyholders in the SFHA should consider using Increased Cost of Compliance (ICC) coverage to access up to $30,000 to help cover the cost of elevating, relocating, or demolishing substantially damaged structures.
- For a structure to qualify as being substantially damaged, the total cost of repairs must be 50% or more of the structure’s pre-flood market value. Non-residential buildings may choose floodproofing as an option in addition to elevation, relocation, or demolition.
- Severe Repetitive Loss and Repetitive Loss homeowners should contact their local floodplain manager and State Hazard Mitigation Officer to learn how up to 100% of mitigation project costs may be covered.