Insurance rate setting under the NFIP has seen little change since the 1970s
The rates are set depending on which of three broad types of flood zones a property sits in
: low to moderate risk, high risk or high risk coastal area. The type of property, the elevation of the building, the number of floors and whether it has a basement are also factored in.
But experts say the use of these flood zones is an unsophisticated way to gauge risk that doesn’t take into account key considerations, like the topography of the land where a property sits. FEMA’s flood models only factor in the risk of storm surge and river flooding
, not the threat posed by heavy rainfall.
“It’s actually sort of a crude way to price flood risk because it doesn’t account for changing flood risk across a landscape,” said Carolyn Kousky, the executive director of the Wharton Risk Center at the University of Pennsylvania and a member of the advisory board for the First Street Foundation.
To address these problems, FEMA is expected to roll out a new system for setting flood insurance rates later this year called Risk Rating 2.0
, which the agency says will utilize the latest technology to better capture the risk for each individual property.
David Maurstad, the senior executive of the National Flood Insurance Program, said that the First Street Foundation’s findings should not be taken as a preview of the rate changes flood insurance policy holders can expect when Risk Rating 2.0 goes into effect.
“Any attempt to compare an outside entity’s premium estimates or premium recommendations to the Risk Rating 2.0 initiative is premature,” Maurstad said in an emailed statement. “FEMA is constantly working to leverage new technologies and provide national-scale flood risk information more efficiently, accurately and consistently to the public.”
Still, Kousky says that the new findings are an important indicator of just how much the cost of flood damage could grow around the country as the climate changes, which the cost of insurance in any single year does not capture.
“It certainly has shown how much flood losses are going to start increasing as a result of climate change,” she said. “That should be a red flag for the NFIP and communities everywhere that the cost of this risk are going up. And that means to stay solvent, insurance costs have to go up as well.”