Stopping the flow 61
pursued in the context of climate change: namely, that addressing the
flow that matters – the water that goes where it isn’t wanted – will require
flows of resources and responsibility no matter what. Eliminating crosssubsidisation does not eliminate social interdependence.
The United States: Risk rating 2.0 and the
technical achievement of ‘equity’
Because most flood insurance in the United States is provided by a public,
federal program – the National Flood Insurance Program (NFIP) – changes
to rate setting have been politically conspicuous and often controversial.
Since 2012, reforms to the NFIP have focused on moving all insureds closer
to individual risk-bearing, meaning their premiums should be based on
actuarial rating of their assessed exposure to risk. In fact, that is how the
program was initially designed and expected to work when it was established
by Congress in the 1960s. An actuarial program of flood insurance, its architects believed, would incentivise risk-mitigating action among those already
in the floodplain, and disincentivise any further uneconomical use of floodplains that had yet to be developed. However, from the start, some forms of
cross-subsidisation have been practically unavoidable, largely in the interest
of making flood insurance affordable and therefore accessible and desirable
to those who needed it most (Elliott 2021).
The latest and current effort to minimise cross-subsidisation in the NFIP
is called ‘Risk Rating 2.0,’ and it promises to put all properties ‘on a glide
path to actuarial rates’ (Horn 2021, p. 10) where there currently exist various discounts and cross-subsidies. The Federal Emergency Management
Agency (FEMA), which administers the NFIP, describes Risk Rating 2.0
as a technical transformation – a ‘transformational leap forward’ (FEMA
2021a) – that will yield socially beneficial effects. Because FEMA has
‘updated’ and ‘improved’ the underlying technology behind assessing risk,
cross-subsidisation is in a sense no longer needed. Cross-subsidisation was,
rather, an unfortunate by-product of the limitations of FEMA’s historic
approach to documenting and quantifying flood risk, which can now be
made obsolete.
That historic approach calculated premiums based on broad rating
classes – specifically, flood zones on FEMA’s ‘flood insurance rate maps’
(FIRMs). You and your neighbour would share a designation as living in a
high-risk zone on the FIRM, and your insurance premiums would reflect
that shared designation. This involved an implicit cross-subsidy within the
zone, to the extent that flood risk varies within it. For example, the people at the edge of a coastal zone closest to the water will presumably face
higher flood risk than those located further inland, but that relatively higher
risk is not reflected in rating if they share the same broad zone. Under Risk
Rating 2.0, the map-based rating, with its broad rating classes, is to be
replaced by rating that ‘will reflect each building’s individual flood risk using
pursued in the context of climate change: namely, that addressing the
flow that matters – the water that goes where it isn’t wanted – will require
flows of resources and responsibility no matter what. Eliminating crosssubsidisation does not eliminate social interdependence.
The United States: Risk rating 2.0 and the
technical achievement of ‘equity’
Because most flood insurance in the United States is provided by a public,
federal program – the National Flood Insurance Program (NFIP) – changes
to rate setting have been politically conspicuous and often controversial.
Since 2012, reforms to the NFIP have focused on moving all insureds closer
to individual risk-bearing, meaning their premiums should be based on
actuarial rating of their assessed exposure to risk. In fact, that is how the
program was initially designed and expected to work when it was established
by Congress in the 1960s. An actuarial program of flood insurance, its architects believed, would incentivise risk-mitigating action among those already
in the floodplain, and disincentivise any further uneconomical use of floodplains that had yet to be developed. However, from the start, some forms of
cross-subsidisation have been practically unavoidable, largely in the interest
of making flood insurance affordable and therefore accessible and desirable
to those who needed it most (Elliott 2021).
The latest and current effort to minimise cross-subsidisation in the NFIP
is called ‘Risk Rating 2.0,’ and it promises to put all properties ‘on a glide
path to actuarial rates’ (Horn 2021, p. 10) where there currently exist various discounts and cross-subsidies. The Federal Emergency Management
Agency (FEMA), which administers the NFIP, describes Risk Rating 2.0
as a technical transformation – a ‘transformational leap forward’ (FEMA
2021a) – that will yield socially beneficial effects. Because FEMA has
‘updated’ and ‘improved’ the underlying technology behind assessing risk,
cross-subsidisation is in a sense no longer needed. Cross-subsidisation was,
rather, an unfortunate by-product of the limitations of FEMA’s historic
approach to documenting and quantifying flood risk, which can now be
made obsolete.
That historic approach calculated premiums based on broad rating
classes – specifically, flood zones on FEMA’s ‘flood insurance rate maps’
(FIRMs). You and your neighbour would share a designation as living in a
high-risk zone on the FIRM, and your insurance premiums would reflect
that shared designation. This involved an implicit cross-subsidy within the
zone, to the extent that flood risk varies within it. For example, the people at the edge of a coastal zone closest to the water will presumably face
higher flood risk than those located further inland, but that relatively higher
risk is not reflected in rating if they share the same broad zone. Under Risk
Rating 2.0, the map-based rating, with its broad rating classes, is to be
replaced by rating that ‘will reflect each building’s individual flood risk using