At Demyst, we're huge fans of improving risk models with more, and higher quality data (both external and internal). That's why we're excited about the topic of this week's Feed: FEMA's release of Risk Rating 2.0 for flood insurance.

Improving equity with data

Risk Rating 2.0, going into effect on October 1, 2021, is estimated to decrease flood insurance costs for 1.2 million homeowners and increase them slightly for 3.8 million homeowners. The current risk rating model uses flood zones, occupancy type, and elevation to calculate flood risk, but crucially overlooks topographical features associated with specific properties. As a result, two properties in similar flood zones but different states frequently pay the same premiums. According to FEMA, the premiums calculated under Risk Rating 2.0 will more accurately reflect an individual property's flood risk by incorporating variables such as foundation type, replacement cost value, distance to water, and elevation relative to flooding source, among others.

Impact on private insurance

FEMA is the largest player in the flood insurance market, with more than 5 million policyholders and over $1.3 trillion in covered assets. As the costs associated with government managed flood insurance increase, individuals with competitive private options may opt for private alternatives that provide higher coverage amounts. The private flood insurance market is still a relatively new phenomenon, so this change may be a boon for its development.

External data is plentiful

Risk Rating 2.0 is a welcome innovation that leverages improved external data from property data sets and GIS sources to more accurately price flood risk. But there is much more external data out there. In the last few years, the private sector has been at the forefront of testing and integrating geospatial data from providers such as Betterview, Tensorflight, and Arturo.ai, new peril scores from providers such as HazardHub (which offers a flood risk score), and behavioral data on individual policyholders. We look forward to seeing much more innovation in this space as more data providers emerge and insurers experiment with new models.

Other Recommended Feeds

Demyst's Partnership with AWS Data Exchange (Press Release)
A brief introduction to Demyst’s partnership with the AWS Data Exchange with guest speaker Arif Razvi (Worldwide Leader, AWS Data Exchange).

900+ attributes to describe a property! (or watch the webinar) 
A wide-ranging conversation with HazardHub (a leading provider of property perils data) about the future of alternative data in the property space, and their key perils attributes.

Alternative data for property insurance is taking off!
Demyst discusses the latest trends in property data and interviews the TensorFlight team to learn more about their geospatial data product that uses aerial imagery to assess attributes such as “distance to pool,” “roof condition,” and “distance to trees.”