FEMA Risk Rating 2.0

Flooding is a prevalent and expensive natural risk faced by the United States of America. Roughly 90% of all natural disasters in the country involve flooding. Since 1980, it has cost Americans over one trillion dollars. Given the complexities of flooding and the need to protect Americans, the National Flood Insurance Program was created in 1968 to administer flood insurance to all Americans located within floodplains. In the past, insurance rates and premiums were solely decided by whichever flooding zone the applying property was located. This meant that a property’s individual risks and vulnerabilities were not considered when setting insurance prices. Beginning last year FEMA began rolling out Risk Rating 2.0 to accomplish the opposite: having insurance rates be appropriate for each property’s unique risk.

By designing Risk Rating 2.0 this way, the insurance rate decision process is becoming much more equitable. Now rates will be decided by a variety of factors, the most important of which is the cost to rebuild a home in the event of a flood. This means that an expensive home, which may incur significant repair costs after flooding, will have higher insurance rates than less expensive homes. Thus, FEMA has stated that roughly 90% of insurance owners will see their rates go down immediately or see only marginal price hikes. Phase I of the project started on October 1st of 2021. This phase saw all new policies, as well as existing policyholders who wanted the switch, be subject to the new risk rating. Phase II began on April 1st, 2022, having all remaining policies being renewed under risk rating 2.0.  

If you would like to read a much more in-depth analysis of Risk Rating 2.0 or a more complete summary of the NFIP, we highly recommend you read the American Flood Coalition article: Flood insurance and Risk Rating 2.0: Everything you need to know in five minutes