Under Risk Rating 2.0, how does FEMA determine an individual property’s insurance cost? FEMA says it can’t share data, so a Louisiana parish sued to find out.
NEW ORLEANS – St. Charles Parish filed suit against FEMA on Tuesday over its controversial new system for setting flood insurance rates, alleging the federal agency has failed to respond to public records requests related to how sharp increases in premiums across south Louisiana are being calculated.
The lawsuit was filed in federal court for the Eastern District of Louisiana. The parish said in a statement that FEMA has not provided data related to the parish’s November 2022 request under the Freedom of Information Act for “information used in the model to determine rates affecting its residents.”
According to the suit, FEMA’s responses to the request included stating that its new rating engine was “designed using privately held data that the U.S. government purchased through contracting.”
“The modeling information is very valuable and the company that produced it would be at a significant loss if it were to be made public,” the agency said, according to the suit.
The new system, known as Risk Rating 2.0, is projected to lead to steep rate hikes across south Louisiana and much of the country, phased in over years. St. Charles Parish in particular is in line for big hikes – average increases of 239% for single-family homes, with one ZIP code in the Des Allemands/Bayou Gauche area projected to see 752% hikes.
Single-family homes in Louisiana are projected to see 134% increases on average. The increases are being phased in with 18% annual hikes.
FEMA defends the new system as fairer for all because it does away with the old method that relied on its imperfect flood maps. Risk Rating 2.0 seeks to evaluate the risk of each individual home through a range of factors, including distance from water, rebuilding cost, construction type and ground elevation.
Rates are calculated through a complex algorithm, and some of the data is proprietary. A major issue local leaders say they have with the system is the difficulty in understanding how levees and other flood control measures being put in place can affect rates. They question whether those measures are being properly accounted for.
“We owe it to our residents to seek out this information, make sure it’s correct and if it’s not correct, get it corrected, to make sure that our risks are being accurately reflected,” St. Charles Parish President Matthew Jewell said. “I don’t believe they are.”
FEMA said it does not comment on pending litigation.
The lawsuit may be only the first legal salvo from Louisiana in response to the new rating system. State Attorney General Jeff Landry is said to be preparing a separate lawsuit after calling the formula for setting rates “arbitrary and capricious.”
St. Charles’ initial demand for information was broad and further clarified at FEMA’s request. It eventually asked for “the risk model used to assign premiums to St. Charles Parish residents,” the suit says.
In a January response, according to the lawsuit, FEMA appeared to refer to its contract with actuarial and consulting firm Milliman, which was paid nearly $11 million for the work. It said that releasing the information requested would breach an exemption from the Freedom of Information Act protecting trade secrets and commercial financial information.
St. Charles filed an appeal to that response, but still has not received the requested data, it says.
Louisianans are more likely to hold flood insurance policies than any other state, and as a result, the state will be especially hard hit by the changes. The highest projected percentage increase in the nation is in Plaquemines Parish’s 70082 ZIP code. Homes there are projected to see a 1,098% boost, to an average annual premium of $8,058 from the current $673.
FEMA says rates rose each year under the old system and that around 20% of policyholders are seeing decreases under the new one. But increases in the old system averaged around 10% per year, according to FEMA, and decreases under Risk Rating 2.0 are occurring only once, in the first year.
Risk Rating 2.0 is meant to bring the flood insurance program more in line with private-sector practices by setting actuarially sound rates and putting it on a more sustainable path. It currently carries debt of around $20 billion, and much of that was the result of flooding following the Hurricane Katrina levee failures, which produced more than $16 billion in paid claims.
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