Frank Carini/ecoRI News

USA - For Many On Coast, Climate Crisis Means Rising Insurance Rates — ecoRI News

The country’s largest flood insurer is changing how it analyzes flood risk, and it could signal a reckoning for coastal communities.

Next month the National Flood Insurance Program (NFIP) will switch from flood-map-based risk analysis to Risk Rating 2.0: Equity in Action. The new pricing methodology will take into account more flood risk variables and, according to the Federal Emergency Management Agency (FEMA), will result in insurance rates that are more equitable and more agile in the face of the climate crisis.

“Risk Rating 2.0 is not just a minor improvement, but a transformational leap forward,” FEMA spokesperson Rosa Norman said. “Risk Rating 2.0 enables FEMA to set rates that are fairer and ensures rate increases and decreases are both equitable.”

NFIP was established in 1968 to fill the gap left by private insurers that would not cover flooding. It is funded by the federal government — though currently $20 billion in debt, with an additional $16 billion canceled in 2017 to meet claims after hurricanes Harvey, Irma, and Maria.

Since the 1970s, premiums have largely been based on property elevation according to zones on a Flood Insurance Rate Map (FIRM). But this method gives “relatively static measurements,” according to Norman, and leaves room for inequities in pricing and coverage.

“We believe that this is a long-overdue improvement to the way that we identify risk and we price our policies according to that risk, and that’s what insurance is intended to do,” David Maurstad, senior executive of the NFIP and deputy associate administrator for Federal Insurance and Mitigation, said during a Sept. 24 press call.

Risk Rating 2.0 will include more flood risk variables, including frequency, types, distance from water and property characteristics including elevation, and the cost of rebuilding.

“The cost to rebuild, which has not been a part of the way that we looked at it before … led to the inequity that lower-value homes are paying more than they should and higher-value homes are paying less than they should,” Maurstad said. “Moving forward, folks will know what their flood insurance risk is, what the premium costs, and it will be written at a premium level that is either not subsidized by somebody else or they won’t be subsidizing somebody else.”

Risk Rating 2.0 will go into effect Oct. 1 for new policyholders, with a six-month delay — until April 1 — in premium increases for existing policyholders, according to Maurstad.

Risk Rating 2.0 does not include future sea-level rise projections, but it does incorporate data from the U.S. Geological Survey, the National Oceanic and Atmospheric Administration, and the Army Corps of Engineers, which, in practice, should make the rating system adaptive to future conditions.

Premiums are based on the risk at present and will be re-evaluated annually “in order to respond if and when the nature of flood risk changes,” according to Norman. As flood risk increases or decreases in regions across the country, ratings and premiums will adjust.

“It’s very important and [Risk Rating 2.0] will continue to reflect the changes in the climate unlike before in our legacy methodology,” Maurstad said.

Flooding is already the most frequent and expensive natural disaster in the United States, according to FEMA. The U.N.’s Intergovernmental Panel on Climate Change projects precipitation and flooding will increase in the Northeast during the next century, especially in coastal regions dealing with sea-level rise.

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