64 R Elliott
In general, then, ‘Risk Rating 2.0 is expected to lead to the reduction of
cross-subsidies between NFIP policyholders, and the eventual elimination
of premium subsidies and cross-subsidies once all properties are paying the
full risk-based rate’ (Horn 2021, p. 13). However, FEMA has indicated that
it does not want to abandon at least one kind of cross-subsidy: that which
funds a voluntary program called the Community Rating System (CRS).
The CRS discounts insurance rates in communities that take steps to manage their flood risk; this can involve everything from simply advising people
about flood hazards, to retrofitting flood-prone structures, to maintaining levees and dams. CRS discounts are offset by adjusting all premiums
upward (Horn 2021). It is not clear how Risk Rating 2.0 will affect the CRS
cross-subsidy, but FEMA’s documentation continues to encourage participation in the program, to maintain a flow that rewards communities that go
above and beyond the minimum standards.
What we have then, in this vision for the NFIP’s future, is a flood insurance system that is capable of further individuating policyholders in multiple ways. This individualisation is normatively desirable for its ability to
allocate to policyholders what they deserve – in terms of their assessed risk
but also in terms of what they have to lose.
The United Kingdom: Flood Re and the
political achievement of prudence
As in the NFIP, the existing arrangements for providing flood insurance
in the United Kingdom involve an aspirational project of eliminating
cross-subsidisation so that everyone is paying a risk-based rate. But whereas
Risk Rating 2.0 promises to automate this change rather immediately as
soon as a technical transformation to risk assessment takes place, in the
United Kingdom, this change is projected to unfold more gradually and
through the terms of a political agreement between the government and the
private insurance industry, one which will eventually realise a ‘free market’
for flood insurance as everyone acclimatises to new kinds of responsibility.
Aspirations to gradually eliminate cross-subsidisation are expressed in
the design of Flood Re, an officially temporary reinsurance arrangement
launched in 2016, as a collaboration between the UK government and the
insurance industry, that allows private insurers to continue to provide
affordable flood insurance in high-risk areas. It works by allowing insurers
to price policies at below-risk levels in such areas and cede the flood portion
to Flood Re, which will reimburse any claims from a not-for-profit pool. The
pool is funded by a levy on all insurers according to their market share, which
they pass onto policyholders at an estimated £10.50 per policy (Surminski
2017; Penning-Rowsell 2015). The arrangement, ‘scaffolded by subsidies,’ is
temporary insofar as it is regarded as ‘a putative waystation to a free market’ (Christophers 2019, pp. 5, 13). Indeed, as Surminski (2017) notes, a ‘key
justification for Flood Re’s political approval despite its costliness was the
In general, then, ‘Risk Rating 2.0 is expected to lead to the reduction of
cross-subsidies between NFIP policyholders, and the eventual elimination
of premium subsidies and cross-subsidies once all properties are paying the
full risk-based rate’ (Horn 2021, p. 13). However, FEMA has indicated that
it does not want to abandon at least one kind of cross-subsidy: that which
funds a voluntary program called the Community Rating System (CRS).
The CRS discounts insurance rates in communities that take steps to manage their flood risk; this can involve everything from simply advising people
about flood hazards, to retrofitting flood-prone structures, to maintaining levees and dams. CRS discounts are offset by adjusting all premiums
upward (Horn 2021). It is not clear how Risk Rating 2.0 will affect the CRS
cross-subsidy, but FEMA’s documentation continues to encourage participation in the program, to maintain a flow that rewards communities that go
above and beyond the minimum standards.
What we have then, in this vision for the NFIP’s future, is a flood insurance system that is capable of further individuating policyholders in multiple ways. This individualisation is normatively desirable for its ability to
allocate to policyholders what they deserve – in terms of their assessed risk
but also in terms of what they have to lose.
The United Kingdom: Flood Re and the
political achievement of prudence
As in the NFIP, the existing arrangements for providing flood insurance
in the United Kingdom involve an aspirational project of eliminating
cross-subsidisation so that everyone is paying a risk-based rate. But whereas
Risk Rating 2.0 promises to automate this change rather immediately as
soon as a technical transformation to risk assessment takes place, in the
United Kingdom, this change is projected to unfold more gradually and
through the terms of a political agreement between the government and the
private insurance industry, one which will eventually realise a ‘free market’
for flood insurance as everyone acclimatises to new kinds of responsibility.
Aspirations to gradually eliminate cross-subsidisation are expressed in
the design of Flood Re, an officially temporary reinsurance arrangement
launched in 2016, as a collaboration between the UK government and the
insurance industry, that allows private insurers to continue to provide
affordable flood insurance in high-risk areas. It works by allowing insurers
to price policies at below-risk levels in such areas and cede the flood portion
to Flood Re, which will reimburse any claims from a not-for-profit pool. The
pool is funded by a levy on all insurers according to their market share, which
they pass onto policyholders at an estimated £10.50 per policy (Surminski
2017; Penning-Rowsell 2015). The arrangement, ‘scaffolded by subsidies,’ is
temporary insofar as it is regarded as ‘a putative waystation to a free market’ (Christophers 2019, pp. 5, 13). Indeed, as Surminski (2017) notes, a ‘key
justification for Flood Re’s political approval despite its costliness was the