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NFIP subsidy disproportionately benefits second homes and high-value properties
A Neptune Flood Research Group study of Risk Rating 2.0 pricing finds the remaining $2.6 billion annual subsidy is concentrated among non-primary properties and buildings over $1 million replacement cost.
A new report says FEMA’s National Flood Insurance Program, now in its fifth year of overhaul efforts, continues to funnel a large share of remaining premium subsidies toward non-primary and high-value properties rather than low-income homeowners. Insurance Business reports the study reframes claims that preserving the program’s subsidy glidepath primarily helps financially vulnerable households.
The analysis, from Neptune Flood Research Group, tracked NFIP pricing across five years under Risk Rating 2.0, launched in October 2021. The pricing shift moved away from flood-zone based rates toward property specific, full risk premiums, with existing policyholders phased toward full risk under an 18 percent annual cap, creating the glidepath where subsidies persist.
More than half of NFIP policies now pay full risk premiums, rising to over 50 percent, up from one-third as of December 2022. Still, about 1.5 million policies, or 42 percent of the program, remain below full risk and carry a combined annual subsidy of roughly $2.6 billion.
According to the report, non-primary properties such as second homes, rental properties, and businesses hold 42 percent of subsidy dollars on 28 percent of policies. It also finds properties with replacement costs above $1 million make up 4 percent of the NFIP book but account for at least 17 percent of the subsidy, while the poorest fifth of census tracts receive 15.8 percent of subsidy dollars, about $419 million per year.