Flood Insurance Will Look Different in 2022. Here’s Why.

2 minute read

Policyholders under the National Flood Insurance Program (NFIP) can expect big changes soon. The federal government’s voluntary flood mitigation effort for property owners and operators will implement a new methodology for setting premium rates called Risk Rating 2.0.

Under current rating methodology, the Federal Emergency Management Agency (FEMA) sets rates for properties participating in the NFIP according to the flood zone in which the property is located. For years, properties grouped within the same flood zone have paid the same premium rate, resulting in lower-value homes in high-risk areas subsidizing higher value properties in less flood-prone zones. Reversing this inequity was the impetus for FEMA’s decision to establish a new risk rating system.

Risk Rating 2.0 will use additional variables to determine a property’s individual risk, rather than assess the property by the zone in which it is located. This process will consider additional flood risks not included in the current methodology, data collected from new flood mapping technology and the risk mitigation features of the property itself.

FEMA has determined that under one quarter of NFIP policyholders will see a decrease in their monthly premium rates, while 66 percent will only see up to a $10 increase in their rates. 11 percent of policyholders will see assessments beyond $10. The new rates kicked in on October 1, 2021 for new policyholders and are set to begin for April 1, 2022 for existing policyholders.

Currently, FEMA’s statistics do not reflect an independent analysis of Risk Rating 2.0’s impact on multifamily policyholders. The National Apartment Association (NAA) is working closely with FEMA to compel the disclosure of multifamily data so that owners and operators can more adequately prepare for the impending changes to rates for multifamily housing.

On September 30, 2021, Congress passed a continuing resolution preventing a government shutdown. The stopgap funding measure also included a one-year reauthorization of the NFIP now set to expire on September 30, 2022.

NAA will continue to monitor the reauthorization of the NFIP and the implementation of Risk Rating 2.0. The NFIP remains an essential tool for multifamily owners and operators to help mitigate flood-based risk. With more than 5 million policyholders participating in the program, long-term reauthorization of the NFIP is critical to ensuring the health of our nation’s housing supply and safety of its community members.

To learn more about our advocacy on the National Flood Insurance Program, please reach out to Sam Gilboard, NAA’s Manager of Public Policy.