FEMA’s NFIP redesign would increase flood insurance rates by 18 percent per year

NEW ORLEANS (WVUE) - The Federal Emergency Management Agency (FEMA) is redesigning its risk rating methodology when it comes to the National Flood Insurance Program (NFIP) with its Risk Rating 2.0 model. Many flood insurance policy holders could see rate increases as soon as fall 2021.

“[Risk Rating] 2.0 will right-size big homes vs. little,” said state insurance commissioner Jim Donelon. “It will hopefully discourage further development in low-lying and vulnerable areas.”

Donelon said the Risk Rating 2.0 plan will make flood insurance more equitable by properly pricing properties based on the size and value of the home. Currently the program bases rates on the amount of insurance a homeowner purchased for their home instead of its replacement cost.

“We can make the program more fiscally sound,” he said, while at the same time keeping it affordable for people living in vulnerable areas. “In particular those in smaller properties that have been historically overpriced, and are being right-sized in this proposal.”

In a statement provided by David Maurstad, senior executive of FEMA’s NFIP, it says:

“FEMA’s National Flood Insurance Program is redesigning its risk rating methodology by leveraging industry best practices and current technology. Under Risk Rating 2.0, FEMA will deliver rates that are equitable, easier to understand and reflect a single property’s unique flood risk. Knowing the true risk of one’s property is critical to ensure adequate insurance coverage to protect against flooding. Additionally, it informs property owners and communities on mitigation measures they can take to reduce flood risk. Under Risk Rating 2.0, existing statutory limits on federal flood insurance rate increases will remain in effect and require that most rates not increase more than 18% per year.”

Donelon hopes the plan will accurately reflect cost of coverage to risk involved, which he said would be a good thing.

“Some areas could see rate decreases as they right-size the risk for the program,” he said.

But he encourages homeowners to not wait to purchase flood insurance through the NFIP, mentioning it would be wise to buy it before the Risk Rating 2.0 changes are made because policy holders could be protected from the changes “in large part through the grandfathering provisions that are in the existing program” that he expects to be continued even after 2.0 is implemented.

Donelon said after Risk Rating 2.0 is implemented, those buying flood insurance should expect to pay full amount. He said while it’s sensible to be fiscally responsible as possible, the program is still important to the state’s economy.

“Because without flood insurance, our real estate market would be severely handicapped as a result of the inability to protect loans on such properties,” said Donelon. “The immediate future--I believe the political reality is that we will not see draconian increases with this reform of the pricing mechanism at FEMA.”

He said only a quarter of Louisiana residents currently have flood insurance.

When it comes to FEMA’s Risk Rating 2.0 model, right now it’s on a path to roll out this fall, but Donelon believes the Biden administration could choose to delay the implementation in order to not discourage people from having flood insurance in place during hurricane season.

A FEMA spokesperson said the NFIP provides flood insurance to property owners, renters and businesses and “having this coverage helps them recover faster when floodwaters recede.”

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