National Flood Insurance Program (NFIP)

The National Flood Insurance Program is a federal program enacted in 1968 to provide affordable flood insurance to property owners at risk of flooding. Flood risk is so great in coastal states that the private market is unwilling to write affordable policies for most property owners. NFIP is administered by FEMA, and contracts with private insurers to write and administer individual policies (they are not the providers of insurance coverage).

With more policyholders than any other state, Florida is both the most affected and the greatest beneficiary of the NFIP. (1.7 million policies with $440 billion in total coverage.) 

With the highest percentage of properties insured under the NFIP, Monroe County is among the most affected counties in Florida. (30,268 policyholders, with more than $7.5 billion in insured value.) 

Monroe County Actions Regarding NFIP and Risk Rating 2.0

With the vast majority of Monroe County property owners insured by NFIP, the cost of flood insurance is a significant component of our property values, housing costs, and cost of living. Its affordability is an important pocketbook issue for our constituents and for our local, regional, and statewide economies.

Coastal communities generate 80 percent of the State of Florida’s GDP and 46 percent of the entire national GDP. NFIP’s affordable flood insurance protection for homes and commercial properties is important because it safeguards the economic engines that coastal communities represent to the State of Florida and nationwide.

After Hurricanes Katrina and Sandy, the NFIP went into debt, paying out far more in claims than it collected in premiums. Flooding is an ongoing and ever-more-expensive disaster. The program is currently in $25B in debt (to the US Treasury). 

As a result, calls are increasing for program reforms to eliminate this debt and ensure it operates in an actuarially sound way. Unfortunately, Congress and FEMA have targeted premium increases as the way to “fix” the program.

In 2014, Congress passed the Homeowners Flood Insurance Affordability Act, requiring a gradual insurance rate increase for NFIP-insured properties, to get each property to a premium that reflects its “actuarial risk.” HFIAA requires annual increases of at least 15 percent (but no more than 18 percent) for primary homes and 25 percent for all other properties.

Risk Rating 2.0

Risk Rating 2.0 was implemented by FEMA at the direction of Congress to move the NFIP toward increasing premiums. It is a new methodology for rating the flood risk of individual properties. Historically, property risk was determined largely by the property's flood zone and base flood elevation. 

Now, with Risk Rating 2.0, a number of other risk factors are incorporated into the risk calculation: 

• Proximity to water
• Type of construction
• Building elevation
• Propensity for excessive rainfall
• Frequency of flooding
• Cost to rebuild 
• Number of prior claims

As of April 1, 2022, Risk Rating 2.0 is in effect for all existing NFIP policyholders.

What changed:

• Premium amounts: Based on the risk factors in the new rating scheme, most policyholders in coastal communities can expect higher NFIP policy premiums.
• New risk factors considered: Premiums are no longer based on the flood zone a property is located in. Instead, the new rating scheme looks at the specific characteristics of each individual property (property elevation, type of construction, proximity to water, flood frequency, cost to rebuild)  
• Policies in non-flood zones: Those inexpensive Preferred Risk Policies for homes in X zones are being phased out. Homes in X zones will now be rated like other properties based on their individual characteristics. 

Not changing:

• Current caps on annual increases: The rate cap limit of 18 percent for primary homes and 25 percent for commercial properties, second homes, and repetitive loss properties will not change. Even if a property’s risk is calculated to be higher, the new premium cannot exceed these caps each year. However, we continue to stress that these caps, which essentially double premiums within 4-5 years, are already too high and do not provide an affordable glide path.
• Sale of property: A property’s current flood insurance premium discounts can still transfer to new owners upon sale.
• Community Rating System: In unincorporated Monroe County, flood policyholders now receive a 35 percent discount on their annual premiums. The CRS discount is automatically applied and is indicated on your individual policy. If you don’t see the CRS class and discount on your policy, contact your insurance agent. 
• Flood zones (such as A, AE, X):  The flood zone in which your property is located will no longer apply for the purposes of determining premium amounts. Flood zones will continue to be used to determine the borders of SFHAs and to determine mandatory purchases. 

You should:

• Contact your insurance agent.
• Get elevation certificates. These will ensure that accurate elevation data is being used to calculate your premiums. FIRM reports that most policyholders have better rates with an elevation certificate.
• Express concerns about your premiums or premium increases, or the need to keep flood insurance affordable, to your federal elected officials. NFIP is a federal program. Urge your senators and congressperson to support legislation that keeps premiums in the National Flood Insurance Program affordable.  One way to do this is to ask them to support legislation that places “guard rails” on Risk Rating 2.0 by capping annual allowable increases.