The National Flood Insurance Program is adopting an approach to rating flood risk employed by the private market for years that can more accurately capture an individual property’s true risk of flood, but there is uncertainty over exactly how the new rating system will work, while some critical problems such as how to deal with repeatedly flooded properties remain unaddressed by the new system.
“We’re going to change an insurance rating structure that hasn’t fundamentally been changed since the 1970s,” said David Maurstad, deputy associate administrator of the Federal Insurance and Mitigation Administration of the Federal Emergency Management Agency and chief executive of the NFIP. “We’re going to consider more flood risks than we currently do now. It is going to be based on replacement costs of the properties.”
More information about policyholder impacts will be released in the coming weeks, but the new rating system will be “data-driven” and factor in different variables rather than basing flood insurance premiums simply on whether or not a property is in a flood zone, Mr. Maurstad said. For example, the new system will determine a policyholder’s flood risk by incorporating elements such as different types of flooding — heavy rainfall from a hurricane, river overflow or coastal surge — and a building’s distance to a coast or river.