![]() NFIP’s pricing approach is an actuarially sound approach to setting flood insurance premiums. The previous methodology set rates based on geographic zones and elevation. How Premiums are Calculated Under the NFIP Pricing Approach In Exhibits 2-4, this is the percentage of policies in each geographic area exposed to each type of peril. In Exhibit 1, this is the percentage of policies within each price range that are exposed to each type of peril. Percentage of Policies with Exposure to Various Flood Perils: The percentage of policies exposed to each type of flood peril. Under NFIP’s pricing approach, annual increases will eventually stop once the full-risk rate is realized. Under the legacy approach, all NFIP policyholders were subject to premium increases every year. This increase is called a “glide path.” By law, rates cannot increase by more than 18% per year for most policyholders. When a policyholder’s current premium is below their risk-based premium, their premium will increase towards the full rate. A third of single-family home policyholders are already paying a risk-based premium, while others are paying lower premiums that are discounted by law. These full-rate estimates will be updated periodically as risks change.Ĭurrent Cost of Insurance: This is what policyholders are paying today. Many policyholders pay less than their full rate (see below). This rate is based on the expected costs of losses and programmatic expenses, without subsidies. Risk-Based Cost of Insurance: This is what policyholders would pay if they were paying their full actuarial rate as evaluated under the rates implemented Oct. In the national data, homes with flood insurance costs that are less than $1,000 per year have an average RCV of $494,090. This calculation is based on a number of factors such as the building’s square footage and ZIP code. For example, 40% of policies nationwide fall into the $0-1,000 range, while 31% cost between $1,000 and $2,000 per year.Īverage RCV (Replacement Cost Value): The estimated cost of replacing the building and any insured contents after a disaster. ![]() PIF Distribution: In Exhibit 1, the PIF distribution isthe percentage of policies within each price range. The data does not include multi-family and non-residential policies because these have different coverage amounts and values than typical single-family homes. These exhibits only show policies for single-family homes, where each household has its own policy. Policies in Force (PIF): Number of insurance policies. See below for risk-based versus current costs. This is based on total risk-based costs per year. ![]() Range of Cost of Insurance: Price ranges for insurance premiums. ![]()
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