FEMA: We’re Changing How We Assess Flood Risk

November 8, 2019

The current rating system for assessing properties’ flood risk is outdated and may not fully reflect the actual danger level for individual homes and communities, David Maurstad, deputy associate administrator for insurance and mitigation at the Federal Emergency Management Agency, told attendees Friday at the REALTORS® Conference & Expo in San Francisco.

FEMA has been developing a new system, Risk Rating 2.0, which would represent the first time flood risk assessments have been update since the 1970s. “We want to transform the national flood insurance program,” Maurstad said at the Federal Issues Update forum. “A key aspect of that transformation is building a sustainable program that includes a rating system that adequately reflects the flood risks of individuals and communities.”

Risk Rating 2.0 will change how FEMA rates a property’s flood risk and prices insurance. It will factor in property data such as distance to a coastline or other water source and the cost to rebuild a home. The current flood rating is based on a 1-percent-annual-chance-event, while Risk 2.0 will add a broader range of flood frequencies and risks in what FEMA calls a “more comprehensive understanding of risk at both the national and local level.” Insurance policyholders will better understand their flood risk and how it is reflected in the cost of their policies, Maurstad said.

More frequent and intense disasters are also making an overhaul of the flood rating system urgent. As of Oct. 19, there have been more than 45 major disaster declarations nationwide this year, with the cost of property damage topping $10 billion. Yet only 30% of property owners who live in high-risk flood areas have a flood insurance policy, Maustad said. “We see the devastation, grief, and hopelessness, and the conversations then center on helping people recover. But we’d also like to move that discussion forward to what else can we do before the disaster strikes? What can we do to make our communities more resilient and close the insurance gaps so that property owners have the funds to recover?” Maurstad said.

FEMA originally announced that Risk Rating 2.0 would take effect Oct. 1, 2020. But the agency announced this week that the debut of has been pushed back one year to allow for greater analysis about how the change could impact flood insurance premiums. FEMA says on its website that Risk Rating 2.0 will comply with existing statutory caps on premium increases, which could help transition policyholders who may face otherwise substantial rate increases.

The long-term reauthorization of the National Flood Insurance Program, the nation’s largest flood insurer, remains one of NAR’s top advocacy priorities. The NFIP, which is currently set to expire Nov. 21 unless Congress intervenes, provides insurance to 22,000 communities nationwide. Congress has granted the program 13 short-term extensions in recent years. NAR has been advocating for a long-term solution, the NFIP Reauthorization Act, which includes a call to extend the program for five years, improve flood mapping processes, and remove barriers to private flood insurance.

Other Legislative Priorities for NAR

Also at the session, Shannon McGahn, NAR’s senior vice president of government relations, highlighted several other federal priorities at the center of NAR’s advocacy efforts on Capitol Hill.

  • FHA condo rule: This fall, the Department of Housing and Urban Development released new condominium financing guidance that could enable more first-time buyers, older adults, and low- to moderate-income families to become homeowners. The guidance—which NAR supported for over a decade—offers property owners greater flexibility in the qualification process for loans insured by the Federal Housing Administration. Lenders will be able to issue FHA loans for single condo units and buildings with a greater number of investor-owned units. The new rules took effect Oct. 15.
  • GSE reform: Earlier this year, NAR released a white paper detailing its vision for housing finance reform. NAR supports transitioning Fannie Mae and Freddie Mac out of government conservatorship, but the association wants to ensure that access to credit continues. The White House unveiled a GSE reform proposal in September that called for modernizing the Federal Housing Administration and ending the government’s decade-long conservatorship of Fannie and Freddie.
  • Infrastructure: NAR has made legislation involving infrastructure a priority due to feedback from members. Currently, NAR supports bipartisan legislation in the Senate that involves investments in surface transportation and infrastructure reforms.
  • Association health plans: NAR continues to advocate for greater accessibility and affordability in health care for real estate professionals, who are often self-employed. NAR, along with more than 20 state and local REALTOR® associations, has filed an amicus brief in support of AHPs. NAR CEO Bob Goldberg met with U.S. Department of Labor Secretary Eugene Scalia at the end of October, advocating for health insurance reform on behalf of REALTORS®.