FEMA Officials Brief NAA Members on Risk Rating 2.0 Impact

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There’s a new rate setting methodology for flood insurance. Here’s what it means for the industry.

On October 26, 2021, National Flood Insurance Program (NFIP) Senior Executive David Maurstad and Chief of Catastrophic Modeling Andy Neal spoke to National Apartment Association (NAA) members about the NFIP’s new rate setting methodology, Risk Rating 2.0.

Unlike the NFIP’s previous rate setting procedures, Risk Rating 2.0 takes into account the individual characteristics of a property and its overall flood risk. Implemented on October 1, 2021, for new policyholders and April 1, 2022, for existing policyholders, Risk Rating 2.0 largely eliminates the use of flood maps to determine rate setting, instead weighing a building’s actual risk against a variety of flood types, the structure’s mitigative features, distance to a water source and more.

Mr. Maurstad began the presentation by explaining why Risk Rating 2.0 was crucial to the long-term success of the NFIP. The program’s legacy rate setting system had created “long standing inequities that we could no longer ignore,” said Mr. Maurstad, referring to the decades old practice of setting premiums by federally mapped flood zone. This methodology had resulted in lower value properties paying higher premiums because of their location, effectively subsidizing rates for higher value properties in lower risk flood zones.

Data made available prior to Risk Rating 2.0’s implementation did not adequately provide multifamily policyholders with an understanding of how their premiums may change. Later in the presentation, Mr. Neal addressed the cloudiness of the data.

“Many communities will break both ways [experiencing increases and decreases]. It’s the nature of Risk Rating 2.0 to rate a structure on an individual basis. Even some very high value buildings have ended up with low premiums once you take into account the level of risk actually they face,” said Mr. Neal. “The most important way for you to understand what this means for you is to go and speak with an [insurance] agent and get your quote.”

NAA will continue to work closely with the NFIP to address member concerns and questions surrounding the implementation of Risk Rating 2.0. NAA will also continue to monitor the reauthorization of the NFIP. The NFIP remains an essential tool for multifamily owners and operators to help mitigate flood-based risk. With more than 5 million policyholders participating in the program, long-term reauthorization of the NFIP is critical to ensuring the health of our nation’s housing supply and safety of its community members.

To learn more about our advocacy on the National Flood Insurance Program, please reach out to Sam Gilboard, NAA’s Senior Manager of Public Policy.