Understand What Risk Rating 2.0: Equity in Action Means for Clients Renewing in April 2022

As you know, FEMA has updated the National Flood Insurance Program’s (NFIP) rating methodology by implementing Risk Rating 2.0: Equity in Action. The methodology is being implemented in two phases: 

• In Phase I: As of Oct. 1, 2021, new policies have been written under the modernized Risk Rating 2.0: Equity in Action rating methodology. Also as of Oct. 1, existing policyholders eligible for renewal have had the option to take immediate advantage of decreases in their premiums by opting in.  
• In Phase II: All policies renewing on or after April 1, 2022, will use the modernized Risk Rating 2.0: Equity in Action rating methodology.   

What does Phase II implementation mean for your clients with existing NFIP policies? 

• Greater Transparency: Risk Rating 2.0: Equity in Action delivers rates that are easier to understand and better reflect a property’s unique flood risk. This offers your clients a more individualized picture of their risk. With a more transparent methodology for calculating rates, your clients will gain a greater understanding of their true flood risk. 
• Equitable Rates: Since the Risk Rating 2.0: Equity in Action methodology considers the cost to rebuild and other factors such as distance to a water source, FEMA will be able to equitably distribute premiums across all policyholders based on the value of their homes and the unique flood risk of their properties. Under the previous rating system, many policyholders with lower-value homes paid more than they should, and policyholders with higher-value homes paid less than they should.  
• Equitable Rate Changes: Risk Rating 2.0: Equity in Action ensures rate increases and decreases are both equitable. FEMA learned that two-thirds of older pre-FIRM homes, which have some of the highest rates in the NFIP, see a decrease in their cost of insurance under the new methodology.  
• Gradual Phase-in of Higher Rates: For policyholders whose premiums will increase, FEMA is increasing their premiums according to the existing statutory limits set by Congress. In most cases, this prevents rates from increasing by more than 18% per year.  
• Continued Discounts for Eligible Policyholders: NFIP is maintaining program features to simplify the transition to Risk Rating 2.0: Equity in Action by:   
  • Continuing to offer premium discounts for Pre-FIRM subsidized and newly mapped properties.  
  • Allowing policyholders to transfer their discount to a new owner by assigning their flood insurance policy when a property changes ownership.  
  • Continuing discounts to policyholders in communities participating in the Community Rating System (CRS). Now, however, the discount is applied to all policies throughout the participating community, regardless of whether the structure is inside or outside the Special Flood Hazard area. 

In terms of specific impacts, each policyholder will be affected differently based on their property’s unique flood risk. Some premiums go up, some go down, and some stay about the same.  

For more information about changes related to Risk Rating 2.0: Equity in Action, visit fema.gov/NFIPTransformation.