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Five years after the rollout of Risk Rating 2.0, the National Flood Insurance Program (NFIP) still carries $2.6 billion in annual rate subsidies, a recent report by Neptune Flood has revealed.
Risk Rating 2.0 is the Federal Emergency Management Agency’s (FEMA), a US government organisation, updated pricing methodology for the NFIP designed to calculate more equitable and actuarially sound flood insurance premiums.
According to the report, policyholders are set to absorb another $10 billion to $13 billion in subsidised coverage before the pricing shortfall finally closes in the late 2030s.
Data shows that while the reform is working as designed, with more than half of NFIP policies being priced at full risk – up from one third in December 2022-, 42% of policyholders still pay below full-risk price.
The remaining subsidies remain heavily concentrated in high-risk zones and affluent holdings. Florida alone accounts for 48% of the national subsidy pool, drawing $1.2 billion per year, while the nation’s top 10% highest-loss areas claim 70% of all subsidy dollars compared to just 2% for zero-claim zones.
Homes valued at $1 million or more hold at least 17% of the subsidy on 4% of policies, and second homes, rentals, and businesses hold 42% of subsidy dollars on 28% of policies.
Though the national subsidy narrows by roughly $50 million per month, the report revealed that 43% of that closure came from policyholders leaving the program.
“Risk Rating 2.0 is doing what it was designed to do, and most policyholders now pay the full-risk price,” said Trevor Burgess, CEO of Neptune Flood. “What remains is measurable, concentrated, and closing on a known timeline. That clarity gives policymakers the information they need to plan the next phase deliberately.”
According to analysts, much of the pushback on rising NFIP prices centres on affordability.
The data shows, however, that most of the remaining discount flows to second homes, businesses, and high-value properties rather than to the households that need help.
To support eligible primary homeowners, the report suggests offering targeted, means-tested financial aid alongside the ongoing phase-out strategy.
The post $2.6bn in NFIP subsidies remain five years into FEMA’s Risk Rating 2.0: Neptune Flood appeared first on ReinsuranceNe.ws.
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📰 This article is sourced from a trusted insurance industry publication. Legacy Life Insurance Group shares this for informational purposes only. Always consult a licensed advisor for personalized guidance.