In what it's calling a "transformational leap forward" and a correction of historical inequities, the Federal Emergency Management Agency is implementing a new system for calculating prices through the National Flood Insurance Program.

It's called Risk Rating 2.0, and it's goodbye to using flood zones to determine a property's risk, which had been the case since the 1970s. Instead, the new system includes a variety of factors, such as distance to water, elevation, frequency of flooding and cost to rebuild.

The old methodology "inadvertently asked homeowners in lower-cost homes to subsidize the flood insurance rates for those in newer, more expensive homes. The old system was flawed and unfair," David Maurstad, who runs the NFIP, wrote in an op-ed. FEMA's website explains that "because Risk Rating 2.0 considers rebuilding costs, FEMA can equitably distribute premiums across all policyholders based on home value and a property's unique flood risk."

But the rollout has not been without controversy and concern.

We're in the first of two phases of implementation. New policies beginning Oct. 1 of last year are subject to the new methodology, and existing policyholders who would see a decrease in their premiums could take advantage of that on Oct. 1. In an update Jan. 11, FEMA said the NFIP had sold about 75,296 new contracts and policies since then.

Under phase II, all other existing NFIP policies renewing April 1 or later will be subject to the new methodology.

So, what does this mean for insurance premiums? It's complicated.

This is the first time in the history of the program that some people — 23% of policyholders — will see a decrease in premiums. Of the rest, FEMA says 66% of policyholders will see an average increase of up to $10 per month, 7% will see an increase between $10 and $20 per month, and 4% will see increases of more than $20 per month.

By comparison, Maurstad said in 2020, the average NFIP premium increase was $8 per month, or 11.3%.

Last May, FEMA released breakdowns by county for the first year of implementation, showing that 33.7% of policyholders in New London County would see decreases and 50% would see increases of under $10 per month.

In its update Jan. 11, FEMA provided some figures on the extremes for the first year: 4,108 policyholders in Connecticut will see decreases of more than $100 per month, while 84 will see increases of over $100 per month.

FEMA underwrites the NFIP, which homeowners can buy through private insurance companies — though it's not to be confused with private insurance policies. NFIP policyholders can contact their insurance brokers to find out how Risk Rating 2.0 will impact them.

Still waiting and seeing

Observers in Connecticut told The Connecticut Mirror in September they were waiting to see the impact of the changes, and while phase I has since begun, they're still waiting.

"I haven't heard anyone complain, but if you never had a policy and you had nothing to compare it to, you probably wouldn't complain," said Diane Ifkovic, NFIP coordinator in Connecticut. But she's waiting to see what happens after April 1, and also noted that phase II coincides with a time of year when a lot of people buy houses.

She expects to see premiums go up for people just outside the mapped floodplain who weren't required to get flood insurance for their mortgage but voluntarily did so. FEMA said an estimated 90% of voluntary policyholders in single-family homes will see rate hikes, the Associated Press reported in December.

The change in methodology shouldn't have an impact on insurance companies, Ifkovic said. Unlike with car insurance, if you call three companies for insurance through the National Flood Insurance Program, the rate should be the same.

New Haven-based real estate broker Michael Barbaro, president of the statewide multiple listing service and past president of the Connecticut Association of Realtors, said he hasn't "heard any horror stories at this point." But he doesn't know what to attribute that to, considering he's seeing historically low inventory in an extremely competitive market, meaning people have a higher tolerance for higher costs.

"Is lack of noise around this the result of low inventory (and) incredible market demand, or the success of the program?" He added, "For me, this is not a case of no news is good news; this is a case of no news is no news, so I'm really waiting to see how this pans out."

As a Realtor, Barbaro said he always worries about unintended consequences, and "uncertainty is not a friend of the real estate market."

One thing that's not changing is the statutory limits dictating that rates don't increase more than 18% a year on primary homes or 25% on second homes, which means it will take years for some policies to reach their new rates.

A bipartisan group of nine senators from New Jersey, Louisiana, Mississippi, Maryland, New York and Florida are sponsoring legislation that would, among other things, cap annual increases at 9%. Sen. Bob Menendez, D-N.J., introduced the National Flood Insurance Program Reauthorization and Reform Act in November but it hasn't gone anywhere since.

"This will put guardrails on FEMA's new rating methodology, known as Risk Rating 2.0, and safeguard policyholders from sudden rate shocks while responsibly disclosing full flood risk," read a news release from the offices of Menendez and Sen. Chris Van Hollen, D-Md.

The same group of senators on Sept. 22 wrote a letter to FEMA Administrator Deanne Criswell, "urgently" requesting she delay Risk Rating 2.0.

They said they were troubled by reports that nearly 80% of policyholders will see premium increases nationwide, and it was their understanding that internal analysis shows FEMA estimates about 900,000 policyholders will drop out of the NFIP over the next 10 years "in large part due to unaffordable premiums under Risk Rating 2.0."

Criswell responded Feb. 10, and said this internal study "was a pre-decisional financial model that was produced using pessimistic assumptions. FEMA anticipates participation in the NFIP to increase because of Risk Rating 2.0. We are committed to closing the insurance gap and reducing disaster suffering by increasing the number of disaster survivors that are insured."

She said if FEMA further delayed implementation of Risk Rating 2.0, "hundreds of thousands of single-family homeowners would continue to pay more than they should," to the tune of $237 million in overpayments for a six-month delay.

Rising costs are nothing new

James O'Donnell, executive director of the Connecticut Institute for Resilience & Climate Adaptation, said the "role of federal flood insurance in decision-making on coastal adaption issues is pretty substantial," and he thinks people may make wiser decisions if they have to pay in proportion to their risk.

He noted that Risk Rating 2.0 has been delayed several times and thinks the full implications won't be clear for a while.

O'Donnell added that while we hear a lot about increasing risks along the shoreline, most flooding doesn't occur along the coast, but inland. Similarly, Stonington Borough Warden Jeffrey Callahan said most flood insurance claims are from river properties, contrary to the popular belief that the NFIP is just a "benefit for elites that live on the coast."

Callahan said more than a third of properties in the Borough have flood insurance through the national program. It's one of 19 communities in the state that participates in the Community Rating System, a FEMA program that provides insurance discounts of 5% to 45% in exchange for activities around flood mitigation and education — and a lot of paperwork. The Borough has done enough activities to get a 10% discount on residents' policies through the NFIP.

Callahan wasn't familiar with the details of Risk Rating 2.0. But the experience of those with flood insurance illustrates a point FEMA has been trying to make: It's not like premium increases under Risk Rating 2.0 are a new fact of life, as premiums were going up under the old methodology.

Callahan has had flood insurance since moving to the Borough in 1992, and in that time, he's seen his premium increase almost tenfold, from the initial rate of $400 or $500 a year. His policy renews in November, so he won't see changes from Risk Rating 2.0 until later this year.

While most people get their flood insurance policies through the National Flood Insurance Program, some are switching to private insurance policies to save money.

Living across from Rocky Neck State Park, Mary Hunter said she wasn't in a flood zone when she bought her house in 2010 but was after FEMA redid its maps since then. Her mortgage lender now requires her to have flood insurance, though she said only her deck is in the 500-year flood zone.

Hunter said she could fight the designation by getting an elevation survey, but that costs $1,800 and she can't afford that. Her NFIP policy was up for renewal this March and the increase would have been $100, bringing the annual premiums to more than $1,200. She instead found a lower rate this month through a private insurance policy.

e.moser@theday.com