WASHINGTON – When the Federal Emergency Management Agency (FEMA) rolled out Risk Rating System 2.0, it promised that the new system would result in leveraging industry best practices to deliver fairer and more equitable premium rates that better reflected each property’s flood risk.
FEMA also claimed that 89% of existing policyholders would either see their premiums drop or remain stable. The new rating system went into effect for all policyholders April 1.
A new study by Redfin, a national brokerage company, predicts instead that 81% of policyholders will see rate increases. Redfin used FEMA’s zip-code level data on the share of policyholders that will experience rate increases, according to a story in the Insurance Journal. FEMA has yet to make a formal comment on the Redfin analysis.
One big difference in the FEMA and Redfin projections is that FEMA treats policies with small increases of $10 or less as stable or no increase. Redfin’s analysis incorporated small initial increases because of the potential future impact of up to 15 years of compounded 18% per year increases built into the new rating model.
The real-world impact of the new rating system is still unclear since the premium changes only happen as existing policies come up for renewal. The Redfin analysis adds to the already existing concern that the new rating system will result in more widely distributed increases in premium rates than FEMA’s initial projections suggested.
