National Flood Insurance Program (NFIP)

What’s new in Risk Rating 2.0?

The NFIP has created a new rating system to provide more equitable insurance rates for the national flood insurance program. This new rating system is called Risk Rating 2.0 and goes into effect October 1^st, 2021.

In addition to property elevation, the new rating system will incorporate the following data:

• Flood frequency
• Flood type (e.g., river overflow, storm surge, heavy rainfall and coastal erosion)
• Distance between a property and water source
• Property rebuilding costs

It is anticipated that approximately 23% of NFIP policyholders will encounter premium rate decreases, whereas the other 77% will experience varying degrees of premium rate increases.

According to FEMA, the current NFIP pricing methodology has led to policyholders encountering average premium rate increases of $8 per month each year at renewal. After incorporating additional flood information and variables into the pricing methodology, FEMA provided that Risk Rating 2.0 will have the following impacts on current NFIP policyholders’ premium rates:

• Nearly a quarter (23%) of policyholders will experience premium rate decreases, paying an average of $86 less each month.
• Two-thirds (66%) of policyholders will encounter moderate premium rate increases, paying an average of $0-$10 more every month.
• The final 11% of policyholders will experience more significant premium rate increases—with 7% paying an average of $10-$20 more each month and 4% paying an average of over $20 more every month.

Despite the various changes being implemented under Risk Rating 2.0, FEMA confirmed that these aspects of the NFIP will remain the same:

• Utilizing flood mapping—In addition to the aforementioned flood information and variables, the FIRM will continue to be incorporated within NFIP pricing methodology.
• Setting limits on rate increases—Statutory limits on premium rate increases will stay in place, meaning that most rates cannot rise by more than 18% each year.
• Offering discounts—A wide range of existing NFIP premium discounts will still be offered to eligible policyholders. This includes (but is not limited to) continuous coverage grandfathering, discounts for policyholders who belong to communities that participate in the Community Rating System and the transfer of policy discounts to new homeowners when properties change ownership.

When should policyholders expect to see changes to their rates?

• Phase I—This phase will start on Oct. 1, 2021. All new NFIP policies beginning on or after this date will be subject to Risk Rating 2.0. In addition, current policyholders who are up for renewal on or after this date and eligible for premium rate decreases under the new pricing methodology will be permitted to start paying reduced costs.
• Phase II—This phase will start on April 1, 2022. All current NFIP policyholders who are up for renewal on or after this date will be subject to Risk Rating 2.0.

For more information about Risk Rating 2.0 please contact fema.gov.