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Triple-I Blog | FEMA's new method for flood risk makes the insurance program fairer



The Federal Emergency Management Agency (FEMA) last week unveiled details of Risk Rating 2.0 ̵

1; its plan to modernize the National Flood Insurance Program (NFIP) to make it fairer and more sustainable.

The changes that measure the risk of flooding differently – measuring the specific risks and compensation costs of the properties, rather than just if they are located in a FEMA-designated "flood zone". FEMA officials said this would end a system where low-value homes effectively subsidize high-quality home insurance.

Despite concerns that risk rating 2.0 would lead to huge premium increases, NFIP chief David Maurstad said that 23 percent of policyholders see "immediate declines", 66 percent will see an "average of zero to $ 10 a month" in further premiums, and 11% will pay higher bills, some more than $ 20 a month.

NFIP owes the US Treasury $ 20.5 billion after a series of hurricanes that resulted in damages costs higher than the premiums FEMA received.

"Our current system is basically no longer working for us," Maurstad said, adding that the new method would result in a "fairer, more accurate and individualized NFIP."

Lawmakers in coastal states like Florida worried the sudden impact of higher prices – more precisely reflecting the greater risk of flooding in these areas – on their constituents.FEMA has improved these concerns by introducing new prices only for new policies when the program enters into force in October 2021. Homeowners and businesses with existing flood policies will not to see a change in interest rates until April 2022.

FEMA said high-quality housing in high-risk areas would experience the largest increases, and FEMA expects their interest rate hikes to take effect during a 10-15-year "slide" as they continue to protected by an 18% annual cap on premium increases written into law.

The Union of Concerned Scientists (UCS) quickly weighed in on the pla nen.

"The system we have used to calculate flood risk, and in turn insurance premiums, no longer holds water," said Shana Udvardy, a UCS climate resistance analyst. Outdated maps have left homeowners ill-prepared for possible disasters. Risk Rating 2.0 can go a long way in helping homeowners better understand their risk and ensure that they can make informed decisions to protect themselves and their property. "

" It's amazing to see FEMA move forward with the much-needed Risk Rating 2.0, "said Matthew Eby, CEO of First Street Foundation, a climate and technology nonprofit that has conducted its own comprehensive flood survey. A recently analyzed First Street analysis showed that the United States was woefully prepared to damage floods. "This corresponds to a total of 14.6 million properties across the country with significant risk, of which 5.9 million property owners are currently unaware of or underestimate the risk they face."


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