National Flood Insurance Program (NFIP) and Risk Rating 2.0

ANALYSIS IN NEXT YEAR

1. What analysis will be undertaken in the next year?

As you may have heard, on November 7, FEMA announced its decision to adjust the implementation schedule of Risk Rating 2.0 by one year from October 1, 2020 to October 1, 2021. This change supports FEMA efforts to get this right for NFIP policyholders and stakeholders. Additionally, FEMA determined more time is required to broaden the agency’s analyses of the proposed rating structure across its entire book of business, to include its relationship to communities behind levees, and to align current policy and procedures to the new rating system.

2. How will that analysis occur?

FEMA is in the process of conducting the analysis and more information will be shared as it becomes available.

CALCULATION OF RISK

3. What types of data is used to calculate risk?

FEMA is using a combination of models to support the development of rates. We are pairing state-of-the-art industry technology (e.g., catastrophe (CAT) models) with the National Flood Insurance Program’s mapping data to establish a new flood risk-informed rating plan. This provides a better and more comprehensive understanding of flood risk at both the national and local level. Data sources being used include:

• FEMA sourced: Existing mapping data, NFIP policy and claims data;

• Other Federal Government sourced: U.S. Geological Survey publicly available data, National Oceanic and Atmospheric Administration Sea, Lake, and Overhead Surges from Hurricanes (SLOSH) data, and U.S. Army Corps of Engineers data sets.

• Third-party: Commercially available structural and replacement cost data and catastrophe flood models.

This is not a complete list of all data sets, and FEMA may add additional data sets in the future.

4. How is risk factored in areas behind levee systems?

In general, a levee system is a structural risk reduction measure. It is designed to operate to separate people and property from certain flooding hazards across a range of probable hazards. Levees reduce the probability of flooding from some sources of water up to their designed height.  Levees can break, and levees can overtop, so there is still residual risk. Risk Rating 2.0 attempts to characterize the residual risk and appropriately price that into insurance rates. Local mitigation efforts that are non-structural, like elevating structures or flood proofing, can also reduce the consequences of flooding.

5. How are levee systems identified?

The National Levee Database was designated by Congress as the authoritative source of levee information for the nation.  Risk Rating 2.0 is leveraging the data in the National Levee Database to understand which homes have their flood risk reduced by levees. The levees are represented as lines for the levee itself, and polygons that represent the area where flood risk is reduced, but not eliminated, by the levee.

6. Is FEMA confident it has identified all levee systems?

No, in fact, FEMA is confident that there are some structures in the United States that receive mitigation from levees but the levees are not in the National Levee Database.  The NLD was designed to incorporate levee information from levee owners and communities that own and operate their own levees.  The best way to ensure that your levee is accounted for in risk rating is to input that information into the NLD. In the absence of information FEMA has done as much as is reasonably possible to incorporate remote sensing technologies to find and accurately describe levee systems so that as many levee systems as possible are reflected in Risk Rating 2.0.

7. Is rainfall total used to calculate risk?  If so, how and why?

Rainfall total is not used as a rating variable, but rather a flood hazard input to calculate flood risk. Through Risk Rating 2.0, FEMA now has the capability and tools to assess a property’s unique flood risk by using existing and updated flood maps and by incorporating additional flood risk variables.  

The additional flood risk variables include distance to a flood source, and property characteristics such as elevation and the cost to rebuild. Hazard inputs such as flood frequency, multiple flood types such as fluvial (river overflow), coastal surge, and pluvial (flooding ponding and pooling prior to river overflow) are used to calculate flood risk.  As FEMA gets closer to implementing the new rating structure, more information will be shared as it becomes available.

PREMIUMS

8. What impacts does RR2.0 have on grandfathered policies? 

FEMA does not have information regarding how Risk Rating 2.0 will impact the grandfather procedure. Additional information will be shared as it becomes available.

9. What impacts does 2.0 have on preferred risk policies? 

FEMA does not have information regarding how Risk Rating 2.0 will impact the Preferred Risk Policy insurance product. Additional information will be shared as it becomes available.

10. How will the renewal premiums be calculated?

Policyholders with rates decreasing will transition to the lower premium at the first renewal of their policy beginning October 2021. Policyholders with rates increasing will transition gradually and within the existing statutory limits set by Congress until the full-risk rate for their property is reached.  Existing statutory limits on federal flood insurance rate increases require that most rates not increase more than 18 percent per year.   

For example, if a policyholder is currently paying $882 (approximately $74 a month) in annual flood costs under the current rating methodology and their Risk Rating 2.0 annual cost is $1,291 (approximately $108 a month), the increase would be phased in over the next three years with an additional annual increase of  $15 or less per month.

11. Has FEMA used its full authority to minimize premium spikes?

Yes.  All premium increases under Risk Rating 2.0 will comply with the existing statutory limits set by Congress until a property’s full-risk rate is reached.

12. If the new risk rating shows a greater likelihood of flooding for a home, and an increased premium, would the existing annual rate cap still apply? 

Yes.  All premium increases under Risk Rating 2.0 will comply with the existing statutory limits set by Congress until a property’s full-risk rate is reached.

13. Is there a plan for phasing in new rates over time to allow communities to conduct mitigation activities to address their risk? 

Policyholders with rates decreasing will transition to the lower premium at the first renewal of their policy beginning October 2021. Policyholders with rates increasing will transition gradually and within the existing statutory limits set by Congress until the full-risk rate for their property is reached.  Existing statutory limits on federal flood insurance rate increases require that most rates not increase more than 18 percent per year.   

MAPS

14. Will this new system lead to the installation of any new monitoring systems or gauges (or increased investment in existing monitoring systems) to keep the maps up to date? 

USGS is a valued partner to FEMA, and FEMA intends to strengthen and enhance that partnership as we move forward and deliver a more comprehensive and consistent understanding of flood risk across the nation.  It is through these types of federal partnerships that such decisions would be transparently considered, determined, and communicated publicly.  At this time, FEMA has made no commitments to install new monitoring systems or gauges as a part of the Risk Rating initiative.   

15. What is the update process for these new risk assessments? Is there a built-in shelf life to the maps so that new information about environmental factors can be useful? How will newly completed projects that reduce risk be reflected in the maps and in the rates?

In general, new information and systems will be reflected as they are incorporated into the National Levee Database, Flood Hazard Maps, and other data and models used by Risk Rating 2.0. FEMA will continue to review the maps every five years to ensure that they remain current.  These reviews account for physical and environmental changes that may warrant a map update.   FEMA will continue to administer the Letter of Map Revision process to account for projects that reduce flood risk.  

ADDITIONAL QUESITONS

16. Are there any measures that policyholder can take that would improve their risk rating? 

Policyholders can speak with their local community official about completing mitigation activities, such as elevating their building or installing proper flood openings, to reduce their flood risk and possibly their flood insurance costs.  

17. From your point of view, what should a state like Louisiana do to prepare for the adoption of this new system? 

States like Louisiana should continue to manage their floodplains as they have in the past.  In addition, they should continue to explore flood risk reduction efforts that reduce overall flood risk and not limit flood risk reduction investments to efforts that impact the 1-percent-annual-chance flood boundary on a FIRM.  

18. Louisiana has spent billions of dollars on marsh creation. Will the new system take into consideration the risk reduction benefits of ecosystem restoration projects (nature-based defenses)? 

As FEMA shifts toward a risk informed approach to setting rates and implementing NFIP programs, the intent is to be able to better account for restoration projects, such as nature-based defenses, that reduce the risk associated with more frequent flooding.  

19. How will newly completed projects that reduce flood risk be reflected in the FIRMs and in flood insurance rates? 

Newly completed projects will be reflected as they are incorporated into the National Levee Database, Flood Hazard Maps, and other data and models used by Risk Rating 2.0. FEMA will continue to administer the Letter of Map Revision process to account for projects that reduce flood risk and ensure that they can be accounted for in future updates to the flood insurance rates. 

Written By: Chip Kline, Executive Assistant to the Governor for Coastal Activities and Chairman of the Louisiana Coastal Protection and Restoration Authority Board

Off to an already active hurricane season here in Louisiana, we are reminded of the unending need to focus on our flood risk. Though the past few months have brought a new type of disaster to our communities, we must not forget the ongoing efforts to avoid and minimize flood risk in Louisiana.

In order to avoid and minimize flood damage, we must first understand flood risk. In April of 2019, FEMA proposed an overhaul of their flood risk and insurance mapping system, called "Risk Rating 2.0." Because of the critical role that flood policy plays throughout Louisiana, we have closely tracked the development of Risk Rating 2.0, just as we have tracked potential reforms of FEMA's National Flood Insurance Program ("NFIP"), through the CPRA NFIP and Coastal Insurability Subcommittee. With the third greatest reliance on the NFIP nationwide, behind only Florida and Texas, Louisiana has a lot at stake in the reform of these systems, and we need to ensure the unique flood vulnerabilities faced by our state are adequately addressed through the NFIP and FEMA's new risk mapping system.

Flood risk modernization is long overdue and should be welcomed. Flood risk mapping should evolve with technological advancements, yet FEMA has not updated its modeling system since the NFIP began in 1974. For far too long, states have been left to guess their risk with outdated Flood Insurance Rate Maps ("FIRMS"), often not aware of the severity of their risk until it is too late. Two-thirds of the nation is not mapped for flood risk. For the areas that are mapped, only half meet the minimum mapping standards set by FEMA. Indeed, less than a tenth of flood maps satisfy FEMA's gold standard for assessing and conveying flood risk. We can and must do better. Only by measuring and understanding flood risk can we effectively avoid and minimize it.

Efforts to increase risk assessment precision and accuracy for homeowners are necessary as we prepare for a future with even greater flood risk than exists today. While FEMA currently assesses risk and premiums based on broad zones, it will soon provide individual property-level data. By accounting for risk reduction measures on individual properties, FEMA anticipates Risk Rating 2.0 will fix shortcomings of the current system that leave properties unprotected and overcharged.

While we must improve our understanding of flood risk, our need for accurate risk models must be balanced with affordable flood insurance. We recognize there are unknowns of Risk Rating 2.0 that have the potential to make flood insurance unaffordable for our Louisiana policyholders. Before we can fully support FEMA's efforts, we first need to understand how FEMA will incorporate grandfathering, preferred risk policies, levee-impacted areas, and nature-based solutions into its new risk mapping system. FEMA 's inability to provide straightforward answers to these questions is concerning, which only makes our advocacy over the next year more important. As the Chair of the NFIP and Coastal Insurability Subcommittee, I thank you for joining our efforts to get more answers and clarity from FEMA.

As we near implementation of Risk Rating 2.0 in October 2021, we must continue to advocate for statutory affordability measures in the NFIP, including a means-tested affordability program and further limit on the rate at which premiums can annually increase. We must also advocate for the inclusion of nature-based solutions in the Risk Rating 2.0 system, so property owners benefit from reduced premiums when the CPRA constructs wetland, barrier, and berm restoration projects. Since 2007, the CPRA has restored or built over 47,000 acres of land and reconstructed 60 miles of barriers or berms. This upcoming year, our coastal program is investing over $1 billion in protection and restoration of our coastal environment, the largest spending plan in the history of our state's coastal program.

CPRA restoration projects reinforce our first line of defense against strong storms and hurricanes, and restoration projects alone have between a $400 million and $1 billion value in cumulative flood damage reduction over the next fifty years, depending on the severity of sea level rise. This defense is a major part of our protection in Louisiana. Because restoration reduces flood risk, it should reduce flood insurance premiums under Risk Rating 2.0.

A robust coastal program and government-led initiatives are only a part of the total effort to reduce flood risk. Coordination amongst state and federal efforts, public and private partnerships, and local-led mitigation are all critical to reducing flood risk. To meet the demands of our flood-prone environment, we must all become active voices of accurate flood risk and affordable flood insurance. We thank you for your support and continue to urge your involvement in advocating for a Louisiana future with less risk and more affordable insurance.