In October 2021, FIRM sent a letter to NFIP Senior Executive David Maurstad expressing concerns about FEMA’s Risk Rating 2.0 methodology.  You can read FIRM’s letter here which includes the comparative analysis for properties in Monroe County.

FEMA’s response four months later is rather generic.  FEMA falls back on the 18% cap on rate increases, arguing that Monroe County rates will not increase as much as FIRM has predicted…in the first year.

It is true that Congress currently limits how much premiums can rise to 18 percent per year on primary residences and 25% on commercial and second homes, mitigating the effects of sticker shock in the short-term. However, we believe that this provision is not sufficient in protecting property holders. For example, in five years, a homeowner with a $600 policy would face an $1,370 bill – and in 10 years, that becomes $3,100. This presents a dual problem to homeowners: unaffordable insurance costs each year, and then a diminished value when they try to sell their home. The primary investment made by most American families – property – is devalued. Increases of 18% and 25% are not sustainable.

FIRM will continue to work with our Members of Congress and others to ensure greater transparency, education and affordability protections for policyholders.

FEMA’s response:

Thank you for your October 25, 2021 letter to the Federal Emergency Management Agency (FEMA) regarding the implementation of Risk Rating 2.0: Equity in Action.

On October 1, 2021, FEMA launched its new risk rating methodology to address longstanding inequities in flood insurance pricing and to establish a system that is better equipped for the reality of frequent flooding caused by climate change. Under the old rating system, some National Flood Insurance Program (NFIP) policyholders with lower-value homes paid more than they should for their actual risk profile, and some policyholders with higher-value homes paid less than they should. Risk Rating 2.0 addresses this inequity. These lower value, lower income policyholders were subsidizing the premiums of policyholders with higher incomes and higher values homes.

The analysis in the letter provided by Fair Insurance Rates in Monroe (FIRM) compared prior NFIP premiums under the legacy system to full risk premiums. The analysis published on compared the prior NFIP premiums to the premium policyholders will pay in Year 1, subject to increase caps mandated by Congressional Statue. For most NFIP policyholders, annual increases are capped at 18%.  In the first year under Risk Rating 2.0 policyholders will not see an average increase of $3,200. The sample provided from FIRM is not far off from the average full-risk policies in Monroe County.  For Monroe County, 27% of quotes are under $1,000, and 40% are under $2,000. Compared to state of Florida, which has 51% under $1,000 and 70% under $2,000. Monroe county, based on a combination of where people and how people build, is on the higher end of risk.

Mitigation efforts are incorporated into the rating methodology and elevation continues to be the most important aspect of rating.  Please see the Appendix D: Rating Factors at the following webpage: Risk Rating 2.0: Equity in Action | The tab labeled “First Floor Height” describes the discounts policyholders will receive based on how high they are built above the ground. For Risk Rating 2.0 FEMA uses First Floor Height and elevation data to help determine flood risk.  As an option, policyholders can provide property specific First Floor Height and elevation information (by using an Elevation Certificate) and FEMA will compare it to the FEMA sourced data to determine if it is beneficial to their rating.  FEMA strives to use the best data available, and FEMA will continue to analyze and update the elevation information it uses for rating over time.

Unlike the old rating methodology, Risk Rating 2.0 encourages other mitigation efforts such as elevating using piers, posts, and piles, elevating machinery and equipment, and installing flood openings.

Prior claims variable is incorporated for those that have had repetitive flooding.  A prior NFIP claims rating factor will be incorporated following the first loss after a policy is in Risk Rating 2.0. Those in Florida who do not have historical flooding claims will not be subject to this additional premium, which can in some instances be significant. For additional information on the prior claim, please refer to pages 3-35 and 3-36 of the Flood Insurance Manual.


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