National Flood Insurance Program Risk Rating 2.0: Frequently Asked Questions

National Flood Insurance Program Risk Rating 2.0: Frequently Asked Questions

INSIGHTi

National Flood Insurance Program Risk
Rating 2.0: Frequently Asked Questions
Updated May 28, 2024
This Insight answers some frequently asked questions about Risk Rating 2.0, which came fully into effect
on April 1, 2022, changing the way the National Flood Insurance Program (NFIP) calculates flood
insurance premiums. For additional information, see CRS Report R45999, National Flood Insurance
Program: The Current Rating Structure and Risk Rating 2.0.
What Is Risk Rating 2.0?
Risk Rating 2.0 is a new pricing methodology and represents the biggest change to the way the NFIP
calculates flood insurance premiums since the program began in 1968. Premiums calculated under Risk
Rating 2.0 reflect an individual property’s specific flood risk, as opposed to being placed in a general risk
category based on location and property type.
Why Did the NFIP Introduce Risk Rating 2.0?
The NFIP updated its rating methodology to calculate flood insurance premiums for individual properties
based on actual flood risk. This is intended to produce rates that are more equitable, and to inform
policyholders of their true flood risk.
How Have Flood Insurance Premiums Been Calculated
Previously?
The NFIP’s rating structure followed the general insurance practices in place when the NFIP was
established and had not fundamentally changed since the 1970s. It used several basic characteristics to
classify properties and assign rates. Structures were evaluated by location within a flood zone on a Flood
Insurance Rate Map (FIRM), occupancy type, and elevation relative to the Base Flood Elevation (BFE).
This rating system did not take into account the individual flood risk or the cost to rebuild, and considered
only two sources of flood risk: river flooding and coastal flooding.
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How Are Premiums Calculated Under Risk Rating 2.0?
Premiums are calculated based on specific features of an individual property, including distance from
water, type of flooding, flood frequency, structure foundation type, height of the lowest floor relative to
BFE, prior claims, and the structure’s replacement cost value. FEMA has provided a Rate Explanation
Guide, Discount Explanation Guide, and Flood Insurance Mitigation Discount Tool to illustrate how
certain rating variables affect premiums. Risk Rating 2.0 also adds pluvial flood risk—flooding from
heavy rainfall.
Will Subsidized Premiums Increase Under Risk
Rating 2.0?
Risk Rating 2.0 continues the phase-out of NFIP subsidies, which began with the Biggert-Waters Flood
Insurance Reform Act of 2012 (BW-12) and continued with the Homeowner Flood Insurance
Affordability Act of 2014 (HFIAA). Properties currently grandfathered will see their premiums move
towards a full risk-based rate. All new policies pay the full risk-based rate. New policies and those
renewed under Risk Rating 2.0 are limited by statutory rate increases.
How Much Can Premiums Increase Annually?
The NFIP is not able to increase rates beyond statutory limits set in HFIAA, which allow premium
increases of up to 18% annually for primary residences. Other categories of property are required to have
their premium increased by 25% per year until they reach full risk-based rates, including (1) non-primary
residences; (2) non-residential properties; (3) business properties; (4) properties with severe repetitive
loss; (5) properties with substantial cumulative damage; and (6) properties with substantial damage or
substantial improvement after July 6, 2012.
Are There Discounts for Flood Mitigation Activities?
Policyholders can receive mitigation credits for elevating a property, elevating machinery and equipment
above the lowest floor, and installing flood openings below BFE. All policyholders in communities in the
Community Rating System (CRS) receive discounts of 5%-45%, based on the community’s CRS score.
How Have Average NFIP Premiums Changed in
Recent Years?
Since HFIAA and before the introduction of Risk Rating 2.0, NFIP average premiums increased between
6% and 11% per year (see Table 1).
Table 1. Percentage Increases in Selected NFIP Premiums, 2015-2021
Rate
Category
2015
2016
2017
2018
2019
2020
2021
Pre-FIRM
14.0%
5.0%
5.0%
5.0%
7.3%
7.9%
7.7%
Subsidized
V zone
9.0%
10.0%
7.0%
11.0%
6.0%
5.9%
0.3%

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Rate
Category
2015
2016
2017
2018
2019
2020
2021
A zone
12.0%
9.0%
1.0%
1.0%
4.0%
4.1%
1.7%
X zone
11.0%
3.0%
2.0%
1.0%
1.0%
3.5%
1.4%
Average
9.9%
9.0%
6.3%
8.0%
8.2%
11.3%
10.2%
Source: Compiled by CRS from annual WYO Company Bul etins.
Note: Rate increases for 2021 do not include changes from Risk Rating 2.0. Post-2022 rate increases are not determined
by flood zone.
Does Being Mapped into a Different Flood Zone Affect
Premiums?
No, flood zones are no longer used in calculating a property’s premium under Risk Rating 2.0. Instead,
premiums are calculated based on the specific features of an individual property. FIRMs are still used for
the mandatory purchase requirement and floodplain management.
How Does Being Behind a Levee Affect My Premium?
FEMA uses data from the U.S. Army Corps of Engineers National Levee Database Levee Screening Tool
(LST) to determine a levee’s level of risk reduction. Currently, 20% of levees have been screened and
have information to fulfill all levee data needs for Risk Rating 2.0.
Does Risk Rating 2.0 Change Requirements to Buy Flood
Insurance?
No, if a property is in a Special Flood Hazard Area (SFHA), the owner is required to buy flood insurance
to secure a federally backed mortgage. Lenders use FIRMs to make this determination.
Can New Premiums Under Risk Rating 2.0 Be Appealed?
No appeal procedure has been established for changes under Risk Rating 2.0. Policyholders can appeal
against NFIP flood maps, but this will not change insurance premiums.
How Are Premiums Changing in My State Under Risk
Rating 2.0?
FEMA has posted state profiles showing changes under Risk Rating 2.0, and data at the county and zip
code level can be downloaded. FEMA has also provided information on the cost of flood insurance for
single family homes under Risk Rating 2.0, showing the number and percentage of policies by price range
at the state, zip code, and county level, including the average replacement cost value in each price range
and the percentage of policyholders facing different types of flood peril.

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Are Premiums Under Risk Rating 2.0 Affected by
Changing Flood Risk Under Climate Change?
Premiums for a single year will not increase due to future climate change. However, if flood risk increases
over time, premiums will increase to reflect the increased risk.

Author Information

Diane P. Horn

Specialist in Flood Insurance and Emergency
Management

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
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IN11777 · VERSION 7 · UPDATED