Katelyn McGruder

Associate Editor

Loyola University Chicago School of Law, JD 2026

The Federal Emergency Management Agency (FEMA)’s Risk Rating 2.0 program, implemented in October 2021, represents a significant overhaul of the National Flood Insurance Program’s (NFIP) pricing methodology. While the new system aims to more accurately align flood insurance premiums with individual property risks, it has sparked both praise and controversy. The State of Louisiana filed suit against FEMA arguing that it has not provided sufficient transparency regarding the new rating system. Louisiana’s political leadership, including the governor and congressional representatives from both parties, have been advocating for FEMA to reconsider its flood risk assessments in vulnerable regions. They argue that the current Risk Rating 2.0 system fails to adequately account for the significant investments made in flood protection and storm resilience infrastructure since major disasters like Hurricanes Katrina and Rita in 2005 and the severe flooding that impacted the Baton Rouge area in 2016. These leaders contend that these substantial improvements in flood mitigation should be reflected in FEMA’s risk calculations. The lawsuit demands more information about the risk model, which they claim relies on “undisclosed, hypothetical, and abstract possibilities.” The lack of comprehensive information provided directly to policyholders has also been identified as a significant issue.

The NFIP is a federal initiative established by Congress in 1968 through the National Flood Insurance Act. Its primary objectives are to share the risk of flood losses through insurance and to reduce flood damages by restricting floodplain development. The program is managed and administered by FEMA through its Federal Insurance and Mitigation Administration (FIMA). As of 2024, the program insures approximately 4.7 million policyholders, with a significant concentration in Texas and Florida.

The NFIP operates on a partnership model between local communities and the federal government. Communities agree to adopt and enforce floodplain management ordinances, and in return, the federal government makes flood insurance available to property owners in those communities. This arrangement aims to mitigate future flood losses through community-enforced building standards. FEMA plays a crucial role in this process, overseeing the floodplain management and mapping components of the program, working with communities to implement regulations, setting insurance rates, and managing the program’s financial aspects. Additionally, FEMA coordinates with private insurance companies that sell and service flood insurance policies under the Write-Your-Own (WYO) program. In essence, the NFIP, under FEMA’s management, serves as a comprehensive approach to addressing flood risks, combining insurance protection with proactive risk mitigation strategies.

Improved risk assessment

Risk Rating 2.0 utilizes advanced technology, updated flood models, and a broader range of variables to assess flood risk at the individual property level. This approach is a substantial improvement over the previous system, which primarily relied on flood zones and elevations. The new methodology considers factors such as frequency of flooding, types of flooding, and distance from water sources, providing a more nuanced and accurate risk assessment. One of the primary goals of Risk Rating 2.0 is to address rating disparities and create a more equitable system. The new methodology aims to ensure that lower-value properties no longer subsidize higher-value properties. This shift is expected to correct historical imbalances where owners of lower-value homes often paid disproportionately high premiums.

Under Risk Rating 2.0, premium changes vary widely. While FEMA claims that 96% of policyholders will see decreases or increases of no more than $20 per month, some property owners are facing significant premium spikes. Particularly affected are coastal areas and regions with historically subsidized rates, such as Gulf Coast states. Some policyholders are experiencing increases of over 300%, raising concerns about affordability and potential impacts on property values.

Significant concerns

Climate change is increasingly influencing the frequency and intensity of natural disasters, particularly those related to water and temperature extremes. The U.S. Geological Survey notes that rising global surface temperatures are likely to lead to more droughts and intensified storms. Floods, already the most frequent natural disaster affecting every U.S. state and nearly every country, are becoming more severe and common due to climate change. This trend is impacting areas that historically may not have been as prone to such disasters. The World Wildlife Fund emphasizes that as the climate crisis intensifies, there’s no doubt that extreme weather events, often resulting in disasters, are increasing in both frequency and intensity. These changes have significant economic implications, with one study projecting flood-related costs to rise by $11 billion by 2050. It’s clear that the changing climate is reshaping flood risks across the U.S., potentially affecting areas beyond traditional flood-prone regions and coastal states.

There are concerns about the potential economic ramifications of Risk Rating 2.0. Some argue that the increased premiums could depress property values or drive residents from their homes, particularly in areas where flood insurance is mandatory. This could lead to reduced tax revenues for affected communities and potentially discourage property purchases in high-risk areas. In areas where flood insurance is mandatory, such as Special Flood Hazard Areas (SFHAs), significantly higher premiums could make properties less attractive to buyers. This reduced demand could lead to lower property values, especially for properties that see substantial premium increases under the new rating system.

This situation creates a dangerous dilemma: homeowners and businesses may opt out of flood insurance due to high costs, leaving them financially vulnerable when disasters strike. Moreover, the increasing cost of flood insurance, coupled with the growing frequency and severity of flooding events, may force long-time residents to abandon areas they’ve called home for generations. This potential displacement is particularly concerning for coastal communities, where opting out of flood insurance is often not an option due to mortgage requirements or local regulations. The challenges posed by increased flooding and the associated insurance issues highlight the urgent need for comprehensive strategies to address flood risks, improve community resilience, and ensure that flood insurance remains both effective and accessible. As the climate continues to change, finding sustainable solutions to these interconnected problems will be crucial for protecting vulnerable communities and preserving their way of life.