Explainer: FEMA’s Rating System Provides Incentives for Safer Construction

Program rewards Shore towns that take steps to make their residents less vulnerable to future storms

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What it is

As a result of the new FEMA flood maps and insurance rate increases caused by the Biggert-Waters Flood Insurance Reform Act of 2012, many communities along the Jersey Shore and in coastal areas around the country are looking for ways to save their residents money on their insurance premiums. The Community Rating System (CRS) is a voluntary program run by FEMA that gives financial incentives to towns that enact regulatory standards above and beyond the minimum requirements of the National Flood Insurance Program (NFIP).

How it works

To join the CRS, the mayor of an NFIP-participating community must send a letter of intent to FEMA. FEMA representatives then pay a two-day visit and conduct an audit to ensure that the community is in compliance with at least all minimum floodplain management regulations. If all looks good, FEMA presents the community with a clean bill of health in the form of a “letter of good standing” and green-lights a second, more detailed audit by Insurance Services Office, a Jersey City-based private contracting firm that handles CRS verifications nationally for the federal government. The entire review process from the time a community submits its original letter of intent until its entry into the CRS program generally takes about a year.

The CRS is a multitiered program where participating municipalities earn points to improve their standing. Communities typically enter at level nine, which grants their residents a five percent reduction on their federal flood insurance premiums. In general, every 500 earned points results in a one-class improvement, and an additional five percent reduction in premiums, so people who live in a class-one community would save the maximum of 45 percent annually. Although federal flood insurance is underwritten by private companies, the rates are set and the program is financially backed by the federal government, which allows FEMA to grant reductions to policyholders in CRS communities.

How to earn points

Participating communities can earn credit for undertaking a variety of flood reduction measures, including preserving open space, mandating that buildings in flood zones be elevated higher than FEMA requires, and incorporating predictions of future sea level rise into their regulatory maps. Overall, creditable activities are grouped into four categories: public information, mapping and regulations, flood damage reduction, and warning and response. Different amounts of points are awarded for different measures, as explained in an extensive manual, which FEMA representatives say is four or five inches thick and weighs “as much as a small child.” Participants must file annual reports detailing how they’re continuing to meet the requirements, and every five years, they go through a complete, follow-up audit.

Though the initial review process can take a long time, it’s otherwise not terribly difficult for most communities to enter the program as a class nine or even improve their standing to a class eight. But the better ranking a community strives to achieve, the more the process becomes progressively difficult, forcing local residents and elected officials to sometimes have tough discussions, weighing the short-term costs and impacts on homeowners with the potential long-term CRS savings and the improved resiliency to future storms.

Who’s Participating

Over 1,200 communities nationwide — including 61 in New Jersey (plus the Meadowlands Commission) — take part in the CRS. Of those, a dozen in the state are class six: Bayhead, Bedminster, Berkeley Township, Brigantine, Cape May, Cape May Point, Fairfield, Hazlet, Lavallette, Middletown, Ocean City, and Rahway. Nine are class five – the highest ranking in the state — saving residents 25 percent off their flood insurance: Avalon, Beach Haven, Long Beach, Longport, Mantoloking, Margate, Pompton Lakes, Sea Isle City, and Stafford Township. Across the country, just Tulsa, Oklahoma and a couple of counties in Washington are class two, and only the city of Roseville, CA has achieved class-one status.

FEMA officials say there’s been a renewed interest in the program as a result of Sandy and the forthcoming rate increases tied to NFIP reform efforts. Tier changes within the program are generally announced twice a year — in May and October — and in the most recent cycle, 17 municipalities in New Jersey earned enough credits to upgrade their ratings.
FEMA touts the CRS as a tool of economic development, since money saved by residents stays in their communities rather than being spent on costly insurance premiums. It emphasizes the enhanced benefits to public safety and environmental protection by participating communities. And the agency notes that as time goes on and insurance rates increase, the cost savings will be amplified even more.