The chasm between the two parallel worlds of the National Flood Insurance Program (NFIP) is about the widen and deepen.
October 1, 2021 marks the start of Phase One for Risk Rating 2.0, a transition away from “in/out” determinations of relationships between structures and Special Flood Hazard Areas (SFHAs), where mandatory flood insurance and regulations apply and toward what FEMA hopes is a more equitable and more accurate assessment of flood risks. The maps showing the various risk levels (Special, Moderate, and Minimal) will still play a central role in floodplain management. But when it comes to assigning premiums, new software will take the place of the tables that flood insurance agents have relied upon for decades.
True, the tables had in recent years been updated to accommodate non-coastal structures with their lowest floors more than the paltry one to three feet below Base Flood Elevation (BFE) that had for decades been the standard cut-off before needing individualized evaluation. Tables in the last two or so years have shown rates for structures with lowest floors up to 15 below BFE before being sent off to the Special Rating Guide.
Risk Rating 2.0 does away with all those tables and instead bases premiums on a range of factors intended to more accurately and more fairly calculate the risk for each individual structure. Individualized risk rating and gradients of risk rather than stark “in/out” determinations are concepts that have been argued for (and against) for years. It was the 2016 Annual Report by the Technical Mapping Advisory Council to FEMA (TMAC) that finally advocated it strongly enough at a time when reform to the insurance side of things was strongly needed that seems to have pushed the concept of structure-based risk assessment from fringe to center stage. Recommendation 23 stated:
“FEMA should develop, in conjunction with others in the public and private sectors, flood risk-rated insurance premiums for all structures within and outside the identified Special Flood Hazard Area. These premiums should be based on the nature and severity of the flood hazard, structure elevation, and other characteristics, as well as structure damage functions and vulnerability.”
This recommendation was rooted in 2015 Annual Report recommendations intending to better prepare our nation for flooding, improve transparency of the insurance rating process, and to try to minimize creating future risk problems as we build.
Now policy premiums will consider the cost to rebuild and include additional rating variables. No longer will insurance agents rely solely on the map zone, BFE, foundation type and elevation of structures in the SFHA. Zone and BFE will be replaced by distance to flooding source and the type of flooding (riverine, urban flooding, coastal storm surge). Other rating factors include a broader range of flood frequencies than just the 1% annual chance event; the use of the building; ground elevation; first floor height; number of floors; and prior claims. Foundation type is still evaluated as an element of structural integrity and resistance to flood damage.
Where will this data come from? FEMA is relying on not just its own data but also other federal government-source data and commercially available third-party data. As one example of an outside data source, readers may have heard of CoreLogic, but there are others.
Is everything changing? No, some basics will remain as we are used to them. Requirements for flood insurance remain in place for structures within SFHAs serving as collateral for any mortgage issued by a federally-regulated lender. Increases in premiums are still limited by federal statute to a maximum of 18% per year. And FEMA-issued flood mapping, no matter whether under the current name of “Flood Insurance Rate Map” or something else not tied to insurance, is still the basis for floodplain management building requirements and mandated flood insurance purchase. One improvement to a retained basic is that discounts to flood insurance policies in communities participating in the Community Rating System (which awards points for proactive floodplain management adding up to premium reductions for policy holders) will now apply to all policies, not just those in SFHAs.
What about Elevation Certificates? They will play a diminishing role in the assessment of insurance premiums. But that doesn’t mean they will disappear. The maps identifying the mandate for flood insurance, local building regulation, and floodplain management will still need updating with Letters of Map Change. Alterations to structures not reflected in the databases still require on-site data collection. Disputes over database accuracy still need surveying services. Local communities may still require Elevation Certificates for consistency in keeping records of lowest floor elevations, data that is required for communities to participate in the NFIP. Building permits and interim checks to assure that construction is according to plans will still rely on Elevation Certificates.
Besides renaming products, FEMA will need to revise language in some of its regulations as well. For instance, references throughout Title 44 of the Code of Federal Regulations (CFR) referring to “Flood Insurance Rate Maps” will need to change as this product changes focus and is renamed, and some definitions specified for insurance applications may need to be rewritten (such as “structure” in 44 CFR 59.1).
The start of the road may be rocky, and surveyors need to keep up to date on the NFIP because our clients need us to help them navigate the two separate universes of flood insurance and floodplain management. Read more about Risk Rating 2.0 at https://www.fema.gov/flood-insurance/work-with-nfip/risk-rating. Find out about discussions leading to Risk Rating 2.0 under the link for “Annual Reports & Recommendations” at https://www.fema.gov/flood-maps/guidance-reports/technical-mapping-advisory-council.