The U.S.’s Federal Emergency Management Agency (FEMA) is about to introduce risk-based premiums for its National Flood Insurance Program, a major shift in how it prices flood risk, via a new methodology called Risk Rating 2.0.
With Risk Rating 2.0, FEMA recognizes the need to take advantage of more accurate data on the likelihood of floods and the likely resulting damage to property. Using this data, FEMA will then set premiums based on risk and convey this information to residents.
Risk-Based Premiums
By making this change, the National Flood Insurance Program should be able to cover catastrophic losses without having to borrow funds from the U.S. Treasury, as they have done after many severe hurricanes in recent years.
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