Reinsurance News

FEMA announces new NFIP rating methodology

6th April 2021 - Author: Charlie Wood

FEMA is updating the National Flood Insurance Program’s (NFIP) pricing methodology in an effort to communicate flood risk more clearly.

femaThe US government agency says Risk Rating 2.0—Equity in Action provides actuarially sound rates that are equitable and easy to understand.

FEMA will now be able to equitably distribute premiums across all policyholders based on the value of their home and the unique flood risk of their property.

Currently, many policyholders with lower-value homes are said to be paying more than they should and policyholders with higher-value homes are paying less than they should.

In developing the new rates, FEMA coordinated with subject matter experts from the US Army Corps of Engineers, US Geological Survey and the National Oceanic and Atmospheric Administration.

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—distance to a water source and property characteristics such as elevation and the cost to rebuild.

“The new pricing methodology is the right thing to do. It mitigates risk, delivers equitable rates and advances the Agency’s goal to reduce suffering after flooding disasters,” said David Maurstad, senior executive of FEMA’s National Flood Insurance Program.

“Equity in Action is the generational change we need to spur action now in the face of changing climate conditions, build individual and community resilience, and deliver on the Biden Administration’s priority of providing equitable programs for all.”

New policies beginning October 1 will be subject to the new rating methodology. Also existing policyholders eligible for renewal will be able to take advantage of immediate decreases in their premiums.

Phase II will see all remaining policies renewing on or after April 1, 2022 subject to the new rating methodology.

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