In wake of destructive Hurricane Ida, majority of NFIP policyholders will face premium hikes

WASHINGTON, D.C. - U.S. Senators Bob Menendez (D-N.J.) and Bill Cassidy (R-La.) today lead a bipartisan group of their colleagues in urging the Federal Emergency Management Agency's (FEMA) to delay its new National Flood Insurance Program (NFIP) rating system known as Risk Rating 2.0. The new rating system, scheduled to go into effect October 1st, is expected to raise premiums on 80% of NFIP policyholders nationwide.

Hurricane Ida ravaged parts of New Jersey and Louisiana earlier this month causing widespread damage and flooding. The storm lead to the deaths of at least 89 individuals, including 29 in New Jersey, and caused tens of billions of dollars in property damage. The National Oceanic and Atmospheric Administration is predicting the rest of this year's hurricane season to have above-normal activity, with expected damage to homes, businesses and communities. The senators are concerned that as hurricane season ramps up, Risk Rating 2.0 will leave flood providers overburdened with this added responsibility of learning a new, unfamiliar, and untested rating system.

"We are extremely concerned about the administration's decision to proceed forward with the implementation of this program without first determining an alternative that avoids the prospect that hundreds of thousands of families will be inclined to forfeit flood insurance on their homes," the senators wrote in a letter to FEMA Administrator Deanne Criswell. "This unwillingness to alter the current proposal and the potential for having a significant increase in uninsured homeowners leaves Congress in the unfortunate position of having to pass more expensive, less beneficial disaster aid on the back end each time a devastating storm strikes and homeowners are left unprotected."

The senators expressed their support for more accurate rating methodologies that would help with the solvency of the NFIP, but remain deeply troubled that nearly eight-in-ten NFIP policyholders will see premium increases nationwide and that around 900,000 policyholders will drop their insurance because of the hikes.

At a Senate Banking Committee hearing in June, FEMA confirmed to Sen. Menendez that premium hikes will affect majority of policyholders.

The senators also slammed FEMA for only beginning to explain Risk Rating 2.0 to Congress this year, despite having years to do so.

"We are troubled that FEMA has not publicly conveyed that 75% of primary residences will potentially see premium increases of 18%, the cap under law," the senators wrote. "This is a sharp departure from the 6% to 12% percent average increases that primary residence policyholders have seen in recent years. In addition, we still have not received requested information and have little insight into the impact of the new program on grandfathered properties."

Senate Majority Leader Chuck Schumer (D-N.Y.) and Sens. John Kennedy (R-La.), Cory Booker (D-N.J.), Cindy Hyde-Smith (R-Miss.), Kirsten Gillibrand (D-N.Y.), Marco Rubio (R-Fla.) and Roger Wicker (R-Miss.) also signed onto the letter.

Both Sens. Menendez and Cassidy have been strong advocates in the Senate for an overhaul of the NFIP, which is set to expire at the end of September without reauthorization from Congress.

They introduced the National Flood Insurance Program Reauthorization and Reform (NFIP Re) Act of 2019, which would tackle systemic problems with flood insurance, lower the cap on annual premium increases to ensure policies are affordable for homeowners, put the NFIP back on solid fiscal ground, and reframe the nation's entire disaster paradigm to one that focuses more on prevention and mitigation to spare the high cost of rebuilding after flood disasters.

In June, Sens. Menendez and Kennedy introduced the National Flood Insurance Program Consultant Accountability Act, which would enhance the Federal Emergency Management Agency's (FEMA) ability to protect homeowners from parties found guilty of fraud that involved in NFIP property damage assessment.

In May, Sen. Menendez questioned expert witnesses during a Banking Committee hearing on the need to make the NFIP more affordable, to revamp its broken claims process that left many Superstorm Sandy survivors holding the bag, and to invest more in mitigation efforts to reduce risk and the ultimate cost to rebuild after a flood.

Sen. Menendez first exposed the problem of widespread lowballing of flood insurance claims during Congressional hearings he chaired in 2014, and then successfully pushed FEMA to reopen every Sandy flood insurance claim for review, which compensated Sandy victims with more than $260 million in additional payments they were initially denied.

Sen. Menendez authored the Superstorm Sandy Relief and Disaster Loan Program Improvement Act, which extended and expanded access to federal disaster loans through the U.S. Small Business Administration (SBA). His Homeowner's Flood Insurance Affordability Act was signed into law in 2014 to address skyrocketing rates many Sandy survivors were encountering. In 2013, he shepherded the original $60 billion federal Sandy aid package through Congress.

A copy of today's letter can be found here https://www.menendez.senate.gov/imo/media/doc/rr_2.0letter.pdf and below.

Dear Administrator Criswell,

We write to urgently request that you delay the new Federal Emergency Management Agency (FEMA) National Flood Insurance Premium (NFIP) rating system known as Risk Rating 2.0, which is scheduled to go into effect for new policies on October 1, 2021. We strongly support more updated rating methodologies that rely on the most accurate data that can help with the solvency of the NFIP, however we have serious concerns about the how the program has thus far been constructed, presented and begun to be implemented and more significantly troubled by reports that nearly 80% of policyholders will see premium increases nationwide[1].

It is our understanding that internal analysis shows that FEMA estimates roughly 900,000 policyholders, or nearly 20% of all policyholders, will drop out of the program over the next 10 years in large part due to unaffordable premiums under Risk Rating 2.0. In light of this information, we are extremely concerned about the administration's decision to proceed forward with the implementation of this program without first determining an alternative that avoids the prospect that hundreds of thousands of families will be inclined to forfeit flood insurance on their homes. This unwillingness to alter the current proposal and the potential for having a significant increase in uninsured homeowners leaves Congress in the unfortunate position of having to pass more expensive, less beneficial disaster aid on the back end each time a devastating storm strikes and homeowners are left unprotected.

FEMA has planned to rollout Risk Rating 2.0 for years, but despite our requests for information, the agency has only began sharing specific information on its potential impacts earlier this year. We are troubled that FEMA has not publicly conveyed that 75% of primary residences will potentially see premium increases of 18%, the cap under law[2]. This is a sharp departure from the 6% to 12% percent average increases that primary residence policyholders have seen in recent years. In addition, we still have not received requested information and have little insight into the impact of the new program on grandfathered properties.

The actuarial premiums that homeowners will see once Risk Rating 2.0 is fully implemented are much higher than what FEMA is rating premiums in its first year. This means that it could take years of compounding 18% increases until homeowners reach their actuarial rate. According to FEMA, 50% of those policies would reach their actuarial rate within 5 years, 40% would reach their actuarial rate within 10 years, and 10% would take longer than a decade to reach their full actuarial rate[3]. FEMA has suggested once a policy has reached its full risk rate, increases would stop. However, these estimates assume the status quo and it seems unlikely that underlying risk factors would not increase over the next decade, potentially putting policyholders on track for high increases for years to come as a result.

We are entering the height of hurricane season, and tens of thousands of Americans have already faced destruction of their homes and livelihoods by Hurricane Ida alone. Tragically, this historic storm led to at least 84 deaths and caused tens of billions in unmet needs and property damage. Flood providers are currently inundated with processing flood claims. With NOAA predicting the rest of this hurricane season to have above-normal activity, we worry that Risk Rating 2.0 will leave flood providers overburdened by the additional responsibility of learning a new, unfamiliar and untested rating system.

FEMA advised that, "beginning August 1, current National Flood Insurance Program policyholders can contact their insurance company or insurance agent to learn more about what Risk Rating 2.0-Equity in Action means to them." Unfortunately, this service from FEMA was delayed past this date and rating engine systems only began to go on September 1, 2021. We are therefore concerned agents have not yet had sufficient training to learn the new program and will therefore be unable to properly convey those changes to policyholders and provide a clear understanding of their new premiums for years to come.

To make matters worse, FEMA has made an open call to nearly five million policyholders to contact their agents to see if they can opt-in to a renewal with a lower Risk Rating 2.0 premium. But our understanding is that only 23% of policyholders are actually seeing decreases, leaving an overwhelming majority of those who call in to their agent disappointed to learn that they will not be receiving a lower monthly premium. We are already hearing of agents choosing to stop selling NFIP policies all together due to the implementation of Risk Rating 2.0 and we have a genuine worry that if FEMA continues down this path with the implementation of Risk Rating 2.0 on the proposed timeline, the NFIP may face long lasting reputational damage that will hurt the integrity and long-term solvency of the program.

In addition, we still have questions and have yet to receive information related to how Risk Rating 2.0 will evaluate and account for levees. States that invested in levees should have that mitigating risk factor taken into account when calculating premiums for homes and small businesses. We hope that FEMA will quickly incorporate this factor into their rating methodology and work with local communities to integrate others that may be absent.

Given these uncertainties, we request that you delay implementation of Risk Rating 2.0 immediately in order to provide time for full Congressional oversight, coordination and correct and transparent implementation.

Thank you for your attention to this matter.

Read this original document at: https://www.menendez.senate.gov/newsroom/press/menendez-cassidy-lead-colleagues-in-calling-on-fema-to-delay-risk-rating-20