FEMA Moves Closer to Risk Rating 2.0 Transition

The Federal Emergency Management Agency (FEMA) on Sept. 1 released several documents, including final guidance, for the upcoming transition to its new risk rating methodology. The guidance outlines how the agency will apply the new rating factors and credit options when determining insurance premiums for policies issued under the National Flood Insurance Program (NFIP).

The NFIP Flood Insurance Manual Risk Rating 2.0: Equity in Action edition, which is effective Oct. 1, 2021, and is now available online, provides the insurance industry with updated guidance on NFIP underwriting policies and processes to enable effective and consistent implementation of Risk Rating 2.0. FEMA also released an Industry Transition Memorandum that describes how transitioning from the current legacy rating plan to the new methodology will occur.

As NAHBNow reported previously, FEMA is taking a phased approach to implementing the new rating methodology. All new policies obtained on or after Oct.1 will be priced using Risk Rating 2.0. Also beginning Oct. 1, policies eligible for renewal will be able to take advantage of immediate decreases in their premiums if their rates under the new methodology would be lower than renewing under the legacy pricing methodology. Phase II, which is effective April 1, 2022, will subject all remaining policies to the Risk Rating 2.0 rating methodology.

Because the transition will impact policyholders at different times depending on their renewal dates, it is important to note that FEMA is maintaining the legacy Flood Insurance Manual that will be used for rating policies with effective dates before Oct. 1, 2021, and optionally, for those policies with effective dates between Oct. 1, 2021, and March 31, 2022, for which policyholders choose to renew under the legacy pricing methodology.

NAHB staff is currently reviewing the final NFIP Flood Insurance Manual Risk Rating 2.0 to develop training material for builders on the new rating factors, with a focus on those related to building practices and mitigation credits.

For more information on the new rating methodology, see NAHB’s fact sheet or visit FEMA’s Risk Rating 2.0 site.