FEMA’s Community Rating System is Crucial in Mitigating Flood Damages

March 2, 2023 – New research published today in the journal Environmental Research Letters examines the effectiveness of Federal Emergency Management Agency’s (FEMA) Community Rating System (CRS). Authored by researchers from Environmental Defense Fund and the Department of Earth and Planetary Sciences at the University of California, Davis, the study examines how the program has effectively reduced flood damages, where the program could be improved upon, and what lessons it holds for similar programs. 

CRS is part of the National Flood Insurance Program (NFIP) and is designed to reduce flood losses by providing financial incentives for local climate adaptation. In exchange for community engagement in a range of risk communication and risk reduction activities, CRS provides discounts on NFIP premiums ranging from 5% to 45%. 

Using national-scale NFIP claims, policies, and CRS data between 1998 and 2020, the researchers found that among CRS activities, those related to “flood damage reduction” are most effective in reducing flood losses and are associated with a 20-30% decrease in NFIP claims. These activities include buyouts and relocation of floodplain buildings and protection of buildings by floodproofing, elevation, or other structural projects. Communities implementing these two activities reported 20-30% less damage claims than communities without such activities. 

"FEMA’s Community Rating System serves as an effective model for other federal market-based programs seeking to incentivize community-level investment in climate resilience,” said Dr. Jesse Gourevitch, a postdoctoral fellow at Environmental Defense Fund and lead author of the study. "As climate change increases the frequency and severity of major flood events, we expect that the benefits of FEMA’s Community Rating System will only continue to grow." 

However, researchers found issues regarding programmatic equity and efficiency. The program pays the costs of CRS in terms of premium discounts, but receives benefits twice: once by covering premium discounts through a cross-subsidy surcharge on all policyholders, and again from reductions in claims paid out of NFIP. 

 “This research confirms that FEMA’s Community Rating System is an effective tool for reducing flood risk nationwide. However, it also highlights FEMA’s troubling practice of “cross subsidizing” CRS, effectively double-billing for the program through a “tax” on policyholders in communities that do not participate in CRS,” said Nicholas Pinter, professor and associate director of the UC Davis Center for Watershed Sciences. 

Learn more about CRS and the researchers’ five recommendations for its improvement here.