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FEMA Reforms Flood Insurance Program, Rates to Rise

For years, federal flood maps have underestimated flood risk across the United States. First Street Foundation publicly released flood risk data for over 142 million homes and properties across the country and found 14.6 million properties within Special Flood Hazard Areas (SFHAs) unaccounted for by FEMA. FEMA’s maps are what inform risk management decisions in the United States, meaning that millions of homeowners have underestimated or been unaware of their current risk — until now.

On April 1st, FEMA revealed that they will be “updating the National Flood Insurance Program’s pricing methodology to communicate flood risk more clearly, so policyholders can make more informed decisions on the purchase of adequate insurance and on mitigation actions to protect against the perils of flooding.”

Not only do they plan to better assess flood zones, but they also plan to change how risk itself is measured. Rather than simply considering whether a home is situated in a “flood zone,” they plan to also consider properties’ specific risks and replacement costs. Official hope this will end an inequitable system in which low value homes essentially subsidize insurance for high value homes.

“Our current system is just fundamentally not working for us anymore,” said National Flood Insurance Program (NFIP) Senior Executive David Maurstad.

“The system we’ve used to calculate flood risk, and in turn insurance policy premiums, no longer holds water. Outdated maps have left homeowners ill-prepared for possible disasters. Risk Rating 2.0 could go a long way in helping homeowners better understand their risk, ensuring they can make informed decisions to protect themselves and their property,” added Shana Udvardy, a Union of Concerned Scientists climate resilience analyst.

Concerns Over Premium Increases

As FEMA amends its flood risk calculations, many lawmakers and homeowners worry about a sudden spike in insurance. While we can expect to see rates increase, FEMA has decided to apply new rates to new policies after October 2021. All remaining policies will not be subject to the new methodology until 2022. Any rate hikes will be phased in for policyholders.

Maurstad adds that 23% of policyholders will see “immediate decreases,” 66% will see an “average of zero to $10 a month” in additional premiums, and 11% will pay higher bills, more than $20 a month. Additionally, those who will be seeing the largest increases are high-value homes in high-risk areas. It is unlikely that the average homeowner will experience a major spike in their insurance premiums.

“The new pricing methodology is the right thing to do. It mitigates risk, delivers equitable rates, and advances the Agency’s goal to reduce suffering after flooding disasters,” said David Maurstad.