NFIP Legacy Rating

Prior to October 1, 2021, the NFIP used a methodology now referred to as Legacy Rating to calculate flood insurance premiums. This approach relied on generalized data and various subsidies to determine rates, often creating discrepancies between a property's true flood risk and its premiums.

October 1, 2021, the NFIP began using Risk Rating 2.0.

Key Features of Legacy Rating

Elevation Data:
- Premiums were calculated using elevation data relative to the Base Flood Elevation (BFE).
- Structures with floors elevated above the BFE qualified for lower premiums, while those below the BFE faced higher rates.
Grandfathering:
- Policies retained favorable rates when communities updated their Flood Insurance Rate Maps (FIRMs), even if the updated maps reflected increased flood risk for the property.
- Grandfathering helped stabilize costs for long-time policyholders but often did not reflect current risk.
Subsidized Policies:
- Many structures, particularly those built before a community’s initial FIRM (pre-FIRM structures), received subsidized rates not aligned with actual risk.
- Programs like the Preferred Risk Policy offered discounted rates for properties in low-to-moderate risk areas.

Limitations of Legacy Rating

The methodology often failed to account for property-specific factors like distance to water, building replacement costs, or unique flood risks.
Subsidies and generalized calculations created inequities, with some low-risk properties overpaying while high-risk properties underpaid.

Transition to Risk Rating 2.0

On October 1, 2021, FEMA introduced Risk Rating 2.0, a more precise methodology based on property-specific risk factors such as location, structure type, and replacement cost.
Legacy Rating remains in historical context, but policies rated under this method are gradually transitioning to Risk Rating 2.0 to reflect current risks more accurately.

This shift marked a significant modernization of the NFIP, aligning premiums more closely with the actual flood risk of individual properties.

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