People worried about global warming and the Trump administration have finally found some common ground. The administration wants an overhaul of the National Flood Insurance Program (NFIP) that forces communities in flood prone areas to do a better job of planning for extreme weather.
The changes are coming through the Federal Emergency Management Agency (FEMA). It is the NFIP’s administrator. Those changes will tie premiums to the actual risk instead of whether a home is inside or outside a 100-year flood plain.
The changes are set to go into effect in 2020.
Union of Concerned Scientist spokeswoman Shana Udverdy said, “This is badly needed” and added it is “a huge step in the right direction, so we can let communities, particularly those communities that have been repetitively flooded, know what their actual risk is.”
Not totally gung-ho, she also says the union worries about the issue of affordability. There is the worry that the push will increase homeowner insurance rates. “How do we protect those people that are historically disadvantaged and low-income, and that are also on the front lines of flooding?” Udverdy asked.
FEMA’s deputy associate administrator for insurance and mitigation David Marstad calls its new plan Risk Rating 2.0. The concept comes from the flooding caused by hurricanes in 2017 and from a large flood in Baton Rouge, Louisiana in 2016. That flooding caused damage to homes that didn’t have flood insurance because the NFIP didn’t accurately measure risk.
So a new system of mapping, pricing and risk will be implemented. “The new rating plan will help customers better understand their risks,” Maurstad pointed out and added, “I believe that will actually increase the demand for our product.”
As you know, most people with flood insurance get that insurance from the NFIP. It has 5 million policyholders and 3.5 million of those are single-family dwellings. And in spite of the large increase of losses from flood on a national level, the NFIP says it is selling 10% fewer flood policies than it did in 2009.
Marurstad isn’t quite sure how the new system is going to impact rates. “We’re not going to design it to either increase or decrease revenue,” he said. “Our effort is to improve our product and price it more fairly.”
FEMA’s press secretary Elizabeth Litzow said whether rates go up or down isn’t the point. “Risk Rating 2.0 will be introducing new sources of flooding, such as intense rainfall, that have not been previously considered in the rating structure,” Litzow said. “While these new sources of flooding have a lesser impact on risk and rates than those already considered, their introduction could result in the increased premium levels.”
Risk Rating 2.0 will use private-sector data to calculate the real flood threat to individual homes. In a test done last October on two homes, FEMA found a home on the edge of a 100-year flood plain had a lower flood risk than one closer to the center.
The current system says both homes pay the same premium rate. Under Risk Rating 2.0, the home on the edge would see a 57% drop in its rate and the one closer to the center will have a rate that doubles.
No doubt the proposed changes will receive attacks from politicians. A few years ago when Congress raised premiums to look like actual risk, public and political opposition was instant. Two-years later the changes were rescinded.
Maurstad said the big difference now — and the real need for change — is flooding that has grown worse. “We’re seeing more intense events,” Maurstad said. “We’re going to have a program that’s going to be able to serve the nation better in the years to come.”
Source links: Carrier Management, Insurance Journal