The Federal Emergency Management Agency (FEMA), which oversees and implements the National Flood Insurance Program (NFIP), has initiated a long-term effort to transform the program to make it more consumer friendly and better reflect the actual risks properties face.
Through the new framework, known as Risk Rating 2.0, FEMA intends to create a more accurate and fair calculation of structure-specific risks and improve the policy application process — efforts that it hopes will compel more home owners to purchase flood insurance.
What this will ultimately mean is that FEMA is going to reassess the factors it looks at when calculating flood insurance rates. The shift will move the NFIP from the current practice, which looks at risk across a broad band associated with flood zones and categories of properties to create an individualized picture of each property’s risk.
Information used to determine the new rates will include property-specific information, such as distance to the coast or other water source, exposure to different types of flood risk, and cost to rebuild the home, among others. All existing statutory and regulatory requirements, including rate caps on premium increases, will remain in effect; but in the end, some rates will go up, and some will go down.
A likely scenario could be as follows: Two homes are located in a 100-year flood plain. The first home sits at the landward edge of the zone and faces a low risk from inland flooding and/or storm surge. The second home, located closer to the flooding source, faces a higher risk from both outcomes.
Under the current system, each home owner would pay the same premium regardless of relative flood risks. Under Risk Rating 2.0, the first home owner will likely see their premium fall and the second home owner will face a premium hike. Because the program is still under development, however, it is uncertain how any given property might be affected.
NAHB staff continues to work with FEMA to obtain more information on the extent of the rate changes, how the program will account for mitigation in calculating risk, if there will be any other changes from current practices, and how information about Risk Rating 2.0 will be communicated to builders, home owners and others.
The program will be rolled out in stages beginning with single-family dwellings. While preliminary announcements regarding the program have begun this year, the new rate schedule is not expected to be published until April 2020 and will not take effect until October 2020. Multifamily properties are expected to be addressed in 2021.
NAHB will be working with FEMA staff to develop industry-specific briefings and resources in the coming months. Please continue to look to NAHBNow for further updates as they occur.