October 1, 2021 was a big day for the NFIP. FEMA’s new pricing methodology is fully operational for new business policies. The overall goal of FEMA was to transform their legacy rating that hasn’t been updated in over 50 years. FEMA will now leverage current technology and industry best practices to operate more like a standard insurance company. Policyholders are no longer paying a premium based mainly on their flood zone. RR2.0 will now rate each building individually using modern technology that are specific to the building. FEMA will use variables such as cost to rebuild, construction type and distance to water; among other variables. FEMA aims to deliver rates that are easier to understand for the agent and policyholder.
The Flood Industry supports FEMA’s efforts to share the risk based on individual characteristics; but it will be challenging to implement without disruption. We will no longer have 2 policyholders pay the same rate when the cost of rebuild those homes are drastically different. A home in rural Indiana has completely different flood exposures than a home that sits on the coast in South Carolina. RR2.0 will solve for those differences. Lower value homes will pay a lower premium than higher value homes.
You can search FEMA’s predictions for your state or county here: