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FEMA Postpones Flood Insurance Changes for One Year

“Risk Rating 2.0” now goes into effect Oct. 1, 2021. Rather than rely heavily on flood zones to determine policy premiums, Risk Rating 2.0 will consider more variables and charge premiums that vary by home. 

WASHINGTON – The Federal Emergency Management Agency (FEMA) has postponed the roll-out date of Risk Rating 2.0 – its plan to update and extend the National Flood Insurance Program (NFIP). The original effective date of Oct. 1, 2020, has been moved back one year to Oct. 1, 2021.

“Some additional time is required to conduct a comprehensive analysis of the proposed rating structure, so as to protect policyholders and minimize any unintentional negative effects of the transition,” FEMA said in a prepared statement. The extension will also allow “all National Flood Insurance Program (NFIP) policies – including, single-family homes, multi-unit and commercial properties – to change over to the new rating system at one time instead of a phased approach.”

Risk Rating 2.0

Although the Risk Rating 2.0 program is still being developed, it’s expected to change the way NFIP calculates flood-insurance rates. As a result, it could save some homeowners money and raise the coverage cost for others.

Rather than levy premiums based on the dollar amount of insurance a homeowner wants, NFIP could operate more like traditional property insurance by weighing a roster of risk variables. Currently, rates are generally based on the amount of coverage a homeowner wants and the risk of flood their home faces – largely whether the home is inside or outside a FEMA-designated flood zone.

FEMA originally said the plan would consider multiple variables, such as the potential for hurricanes, a home’s distance from a body of water and its risk from coastal surges. It would also consider using new “loss-estimation technology” that predicts a home’s risk from climate change. It could also offer replacement cost coverage.

Florida – home to about 35 percent of all NFIP policies – could be impacted, though it’s not yet clear how a specific homeowner might be affected. However, it’s likely that some homeowners in FEMA flood zones would see flood insurance costs increase, and that potential for higher costs led some lawmakers to push for a Risk Rating 2.0 delay.

“We’re encouraged that FEMA is listening to Congress’s concerns about the impacts of Risk Rating 2.0. FEMA’s promise to protect policyholders and minimize any unintentional negative effects in the transition is vital to ensuring the NFIP remains successful,” according to a joint news release issued by six lawmakers, including three from Florida: Reps. Charlie Crist, Debbie Mucarsel-Powell and Francis Rooney.

NFIP currently expires on Nov. 21, 2019, and Congress is working on a solution to extend it for at least a few years. Should lawmakers reach agreement, it’s unclear how a legislative fix might impact FEMA’s Risk Rating 2.0 regulatory fix.

Under U.S. law, FEMA is limited in its ability to raise rates. It’s also unclear how those limitations might impact increases under NFIP’s new risk model.

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