What’s not transparent about Risk Rating 2.0?

David Maurstad FEMA’s Assistant Administrator of the Federal Insurance Directorate and the senior executive of the National Flood Insurance Program (NFIP) recently testified before the House Financial Services Subcommittee on Housing and Insurance. Rep. Bill Posey (R-Florida 8th District, Titusville, Melbourne, Vero Beach) asked a pointed question about the lack of transparency of Risk Rating 2.0 (see 54:05 in the C-SPAN coverage):

Rep. Posey:  “Why does FEMA continue to resist making all the data, the methods and models that they use, the calculations and how they calculate it under risk rating 2.0 completely and fully transparent?”

Maurstad:  “I believe we have provided all the information that we have been requested to provide. We’ve been very transparent. We have provided the entire methodology for the development of the actuarially sound pricing model that we now use. If there is additional information that would be helpful to you, we will certainly do our best to provide it for you.”

If Risk Rating 2.0 were fully transparent, one would be able to duplicate exactly their Risk Rating 2.0 Engine. A complete description of the methodology might be sufficient; however Maurstad’s answer is problematic for two main reasons:

1. FEMA modified publicly available national datasets and has not released the modified versions. In most cases, these modifications would have required numerous judgment calls, such that ten people performing the same modifications, based on the briefly stated methodology, would produce ten different results. Examples of data sets FEMA modified are:
   • Barrier Islands: “… manually delineated by drawing polygons around selected land features based on NHD water areas.”
   • Coast: “The coastal features … were based on a selection of coastal features and near-coastal waterways from the NHD. This dataset was modified…”
   • Ocean: “… derived from NHDArea SeaOcean features as a starting point and then modified…”
2. FEMA also used a proprietary dataset and has not made that data nor associated methodology publicly available.
   • One term in the Risk Rating 2.0 equations is a variable called “River Class”. It describes the elevation difference between the 100-year flood and the 10-year flood, with bigger differences translating into higher flood risks. FEMA documentation states: “The catastrophe modeling company, KatRisk LLC (‘KatRisk’), created raster datasets representing modeled 10- and 100-year return period flooding depths for CONUS, Hawaii, and Alaska. This data is not publicly available. Milliman obtained this dataset directly from KatRisk on behalf of FEMA on June 6, 2019. This was used to construct River Classes …”. The documentation also states: “KatRisk provided ‘KatRisk Data and Model Technical Documentation’ dated February 2018.” An emailed request for this documentation received only an automated response.

This lack of transparency makes it difficult though not impossible to create a near replica of the Risk Rating 2.0 Engine. So, to create the products on the ReadYourRisk site, I studied FEMA’s methodology, sifted through available data sets, and found workarounds to address the above shortcomings. My efforts provide a tool for people to use to estimate NFIP premiums and view the variability in NFIP rates across communities. Though if members of Congress, such as Rep. Posey, can wrangle any of the above from FEMA, I will certainly update my maps accordingly.

But there are other ways in which the current Risk Rating 2.0 system is far from transparent: To get an official quote for flood insurance through the NFIP, you must go through a qualified flood insurance agent. And such agents can only generate quotes one property at a time using the official, web-based and access-restricted Risk Rating Engine. One quote at a time, generated by a restricted few is just … not … transparent. Let’s look at a couple of examples.

Say you are a potential home buyer, and among numerous factors that might influence your decision to buy, you are looking to avoid high flood insurance premiums, or at least understand what to expect before you make an offer. You are going to have to spend a lot of time calling for quotes, and probably never fully understand that there are probably areas in your community where risks are dramatically lower, and just how much flood liability you might be taking on in other high-risk areas. Purchasing a home is one of the biggest decisions people make. Transparent flood insurance information would mean ready access to this data before you sign on the dotted line.

And what about developers and community officials looking to develop a community while considering flood risk? They might want to evaluate not only where to develop, but how to construct to mitigate that flood risk and reduce premiums. But if you can only see flood insurance costs one property at a time, you are going to have a hard time generating a community-wide picture of that risk.

This is where the ReadYourRisk.com Risk Rating 2.0 Premium Estimate Maps and Risk Rating 2.0 Calculator come in. Risk Rating 2.0 Premium Estimate Maps enhance the transparency of Risk Rating 2.0 by allowing the user to see immediately where in their community flood insurance premiums are higher and lower. Risk Rating 2.0 rates reflect actual flood risk, so NFIP premiums are now direct financial indicators of flood risk liability (whether you buy flood insurance or not). With ReadYourRisk.com Maps, home buyers can readily determine where flood risk might significantly increase their cost of homeownership, enabling them to make a conscious decision to accept that liability or search for a lower risk area. And the Risk Rating 2.0 Calculator allows you to quickly assess how flood mitigation efforts, such as installing flood vents, can reduce NFIP premiums. It’s the only place online where you can plug in your information and get a quote, and the only place where you can see how various geographic factors affect your flood risk.

Risk Rating 2.0 has the potential to transform flood risk management across the country with its actuarially sound rating method and direct reflection of risk in flood insurance premiums. ReadYourRisk.com Maps and the Risk Rating 2.0 Calculator Make flood insurance rate information more readily available and accessible. These tools build on the strength of the Risk Rating 2.0 actuarial rating system by enhancing flood risk literacy and awareness and will help enhance the flood-intelligence of communities.