National flood insurance program: The current rating structure and risk rating 2.0

The paper "National Flood Insurance Program: The Current Rating Structure and Risk Rating 2.0" continues the overall policy of phasing out National Flood Insurance Program (NFIP) subsidies, which began with the Biggert-Waters Flood Insurance Reform Act of 2012 and continued with the Homeowner Flood Insurance Affordability Act of 2014. Under the change, premiums for individual properties will be tied to their actual flood risk. Because the limitations on annual premium increases are set in statute, Risk Rating 2.0 will not be able to increase rates faster than the existing limit for primary residences of 5%-18% increase per year.

According to FEMA, Risk Rating 2.0 will:

• reflect an individual property’s risk,
• reflect more types of flood risk in rates,
• use the latest actuarial practices to set risk-based rates,
• provide rates that are easier to understand for agents and policyholders, and
• reduce complexity for agents to generate a flood insurance quote.