5 Things Preferred Risk Policy (PRP) Customers Should Know About Their Policy Under Risk Rating 2.0: Equity in Action

Preferred Risk Policies (PRPs) are lower-cost policies that have traditionally been available for most homeowners and renters living in moderate- and low-risk areas across the country. Under Risk Rating 2.0: Equity in Action, FEMA is able to differentiate flood risk in areas outside high-risk flood zones and will no longer offer the PRP insurance product. For this group of voluntary policyholders, some rates will go up, some will go down, and some will stay about the same. As of October 1, 2021, current PRP customers can personalize their flood insurance coverage. Use these talking points to inform conversations with PRP policyholders so they know what changes may mean for their rates upon renewal:

1. Keeping your flood insurance policy active is important now more than ever, as floods are becoming more frequent and severe. FEMA’s new flood insurance pricing system better equips all policyholders, including PRP policyholders, for the reality of increasing flood risk due to climate change. Risk Rating 2.0: Equity in Action will help disaster survivors recover faster after floods and protect the homes and lives they’ve built. FEMA encourages policyholders to speak with their insurance providers as soon as possible to understand how the new methodology might affect their policy and see if their property qualifies for any premium discounts.
2. PRP policyholders can now choose their coverage amounts and deductible options for their policies and don’t have to follow pre-set building or contents policy limits. PRP customers now have the option to customize their coverage under Risk Rating 2.0: Equity in Action, up to $250,000 in coverage for the structure and $100,000 for personal property. This means that PRP policyholders, many of whom have purchased flood insurance voluntarily, can choose the coverage that works for their homes or businesses.
3. Insurance rates are based on a property’s unique flood risk. With Risk Rating 2.0: Equity in Action, FEMA now has the capability and tools to address rating disparities by incorporating more flood risk variables, like flood frequency, multiple flood types (river overflow, storm surge, coastal erosion, and heavy rainfall), and distance to a water source, as well as property characteristics such as elevation and the cost to rebuild. This means that while flood maps will continue to be incorporated in mandatory purchase requirements, building code requirements, and floodplain management requirements, they will no longer be the most significant factor in rating premiums, ensuring premiums and coverage are tailored to each specific property’s flood risk.
4. Once the new methodology takes effect, claims history will be considered only after the first loss. Under Risk Rating 2.0: Equity in Action, existing policyholders, including PRP policyholders, with no prior losses will not see their premiums increase upon renewal due to a first claim. After a policyholder’s first claim, policyholders with two or more prior losses will only see their rates reflect claims over a 20-year period. Policyholders should know that any rate increases will be gradual and will be subject to existing statutory rate caps set by Congress.
5. PRP policyholders may qualify for mitigation discounts under the new methodology. In participating Community Rating System (CRS) communities, full risk premiums are discounted to reflect the reduced flood risk resulting from the community’s mitigation efforts. Additionally, personal mitigation efforts, such as elevating a building on piles or installing proper flood openings in a crawlspace, will help reduce flood damage and potentially the cost of flood insurance. Encourage your PRP policyholders to consider undertaking mitigation measures or talking with their elected officials about CRS and other discounts.

Assure PRP customers that maintaining flood insurance coverage under Risk Rating 2.0: Equity in Action is necessary, as flood risk will only continue to increase due to climate change.

The new methodology is bringing generational change to the NFIP as we continue building a culture of preparedness, improving individual and community resilience, and reducing disaster suffering.