Study Finds FEMA’s New Flood Insurance Pricing Is Improving Risk Signals but Reducing Coverage, Especially in Lower-Income Communities

(Washington, D.C – December 16, 2025) As climate change drives more damaging floods across the United States, a new paper published in the Journal of Catastrophe Risk and Resilience (JCRR) provides crucial insights into how federal flood insurance reforms are directly affecting the affordability and security of coverage for families.  

The paper, titled “Effects of Risk-Based Pricing Reform on Flood Insurance Uptake,” finds that premium increases associated with the National Flood Insurance Program’s (NFIP) new pricing system, Risk Rating 2.0, have substantially reduced NFIP policy uptake, with particularly large declines in lower-income communities. 

“Risk Rating 2.0 was designed so that flood insurance pricing could reflect property-specific flood risks, but our findings show that rising premiums are also driving many households, especially those with lower incomes to forgo NFIP coverage,” said Dr. Jesse Gourevitch, Economist at Environmental Defense Fund (EDF) and the paper’s lead author. “Targeted affordability protections can help ensure lower-income households keep their coverage as flood risks rise.” 

Risk Rating 2.0 has already driven a decline in both new and existing policies, in some cases as much as 39% and 13% respectively, highlighting how rising premiums are straining households and leading to wider gaps in flood insurance protection. The study underscores the potential benefits of complementary policies that protect such households while preserving the benefits of risk-based pricing. 

Key policy implications from the report include: 

• Risk Rating 2.0 can improve efficiency and risk reduction incentives. By aligning premiums more closely with underlying flood risk, Risk Rating 2.0 can help incentivize households and communities to invest in adaptation measures and avoid development in high-risk areas, while also helping reduce the long-term costs of servicing the NFIP’s debt to the U.S. Treasury.
• Reduced insurance uptake worsens the flood protection gap. Declines in NFIP enrollment exacerbate already large gaps in flood coverage. After flood events, lack of insurance can slow and constrain household financial recovery, create negative spillovers for surrounding communities and local economies, increase strain on federal disaster aid and other social safety net programs, and raise the risk of mortgage delinquencies, prepayment, and default.
• Means-tested assistance could help low-income households maintain coverage. The authors highlight the importance of a means-tested affordability program to help low- and moderate-income households maintain or obtain flood insurance as premiums rise. Such a program would preserve the benefits of risk-based pricing while ensuring that the families least able to take on rising costs don’t lose the coverage that protects them.
• Investments in flood-risk reduction can lower premiums over time by reducing expected losses, making insurance more affordable for households. 

"Flood insurance coverage is critical to managing financial risks associated with flooding and supporting household recovery after flood events," said Dr. Gourevitch. "Despite the potential benefits of Risk Rating 2.0, our results highlight the need for policy interventions, that help low-income households maintain their insurance coverage." 

The study’s findings reinforce recommendations from EDF’s NFIP Policy Platform, first reported in the Miami Herald, which calls for modernizing NFIP pricing while creating a complementary, means-tested assistance program to help low- and moderate-income households afford NFIP policies.  

The full paper, “Effects of Risk-Based Pricing Reform on Flood Insurance Uptake,” by Jesse Gourevitch, Max Snyder, and Carolyn Kousky, is available here.  

About the Authors: 

• Jesse Gourevitch is an Economist at Environmental Defense Fund (EDF).
• Max Snyder is a PhD candidate at UC Berkeley, Agricultural and Resource Economics
• Carolyn Kousky is the founder of Insurance for Good, author of Understanding Disaster Insurance, and former AVP of Economics and Policy at EDF