FEMA Rolls Out Long-Awaited Changes To National Flood Insurance Program

The Federal Emergency Management Agency is rolling out changes to the National Flood Insurance Program’s pricing methodology.

The new system, dubbed “Risk Rating 2.0—Equity in Action,” will provide actuarially sound, equitable, and easy-to-understand rates, FEMA says, and updates a methodology that has remained unchanged in five decades. 

The pricing methodology will focus on equitably distributing premiums across all policyholders based on their home’s value and the unique flood risk of their property. “Currently,” the agency said in a statement, “many policyholders with lower-value homes are paying more than they should and policyholders with higher-value homes are paying less than they should.”

“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, said in a statement. 

The new rates will be rolled out in two phases: new policies beginning Oct. 1, 2021 will be subject to the new rating methodology. Also beginning Oct. 1, existing policyholders eligible for renewal will be able to take advantage of immediate decreases in their premiums, FEMA says. In phase two, all remaining policies renewing on or after April 1, 2022 will be subject to the new ratings.  

The National Flood Insurance Program provides about $1.3 trillion in coverage for more than 5 million policyholders in 22,500 areas across the US. The new pricing methodology was developed in coordination with subject matter experts from the US Army Corps of Engineers, US Geological Survey and the National Oceanic and Atmospheric Administration, as well as from the insurance industry and actuarial science sectors.

The changes have been much-debated and long-awaited among industry experts, with analysts from First Street Foundation estimating earlier this year—prior to last week’s announcement—that hundreds of thousands of homeowners could see their flood insurance rates jump as early as this fall. First Street analysts said in February that in the most flood-prone areas of the US, those rates could more than quadruple, and estimated that premium increases of more than $10,000 are necessary for the insurance on approximately 265,000 homes to match their corresponding level of risk.