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Analyzing FEMA’s Flood Insurance Revisions

Bad news for homeowners with a flood insurance policy—for the majority of homeowners in flood zones, rates are more than likely going to go up when the policy renewal time comes around. 

Starting October 1, 2021, the Federal Emergency Management Agency (FEMA) switched to a new risk rating system colloquially known as “Risk Rating 2.0” which changes how risk is assessed to homeowners. Previously risk was dependent on if you lived in a flood zone or not; now it is dependent on a variety of factors including distance to flood source, severity and frequency of flooding, and property characteristics, such as the cost to rebuild the property in the event of damage. 

On a nationwide level, flood insurance rates will increase for about 77% of policy holders meaning that for 23% of policy holders rates will go down. However, due to the expected increase for some homeowners, the rise in premiums will be spread over a few years so the impact of the new model will be easier on the wallet. 

Most homeowners (66%) will see an increase of about $120 a year while 11% will see rates rise between $120-$240. 

According to research by Porch.com, a typical price hike in flood insurance premiums would be around $7.35 a month or $88 a year, pushing the annual average price to $822, which is up 12% from what it currently is. Currently, the national flood insurance rate averages $734 per year. 

The change to a new rating system comes from the necessity of the program to remain solvent; a litany of disasters drove the program into a massive amount of debt in the tune of about $20 billion over the last decade or so. This was due to insufficient rates that did not accurately reflect the cost of repairs/reconstruction in the event of a flood. 

The National Flood Insurance Program was initially started in 1968 as a way for homeowners to get a federally-insured flood insurance policy for those who live in high-risk areas. The program was created at the time due to insurance companies' decisions that floods were an uninsurable risk prompting Congress to protect these homeowners. This program also created flood-zone maps which were essentially non-existent at the time. It should be noted that homes and businesses in high-risk flood areas with mortgages from government-backed lenders are required to have flood insurance. 

While the majority of policy holders may see an increase in rates, those in flood prone regions, such as Hawaii and the Gulf Coast states, will see the highest percent of rate hikes. 

For example, those in hurricane-prone Texas, 86% of policy holders will see an increase in premiums. In nearby Mississippi, rates are expected to rise for 84% of homeowners while those in Florida and Louisiana will see increases of 80%. 

“On the other hand, Alaska, the Washington, D.C. area and multiple states in the Midwest, have the lowest share of homeowners facing flood insurance premium hikes,” the study said. “In Alaska (14%) and Washington, D.C. (28%), only a minority of households are set to pay more for flood insurance, while in Washington, D.C.-adjacent Maryland, the share is a far greater 39%.” 

“Many Midwestern states are among those with the lowest percentage of homeowners facing flood insurance price hikes. In Michigan, less than half (46%) will be paying more, while in states like Nebraska, Indiana, Ohio, Wisconsin, and Illinois, that share is between 54% and 57% of all homeowners.” 

Click here to view the report in its entirety at Porch.com. The webpage also includes a zip code tracker where one can search by zip code to see how rates may be affected by the new risk management calculator. 

About Author: Kyle G. Horst

Kyle G. Horst is a reporter for DS News and MReport. A graduate of the University of Texas at Tyler, he has worked for a number of daily, weekly, and monthly publications in South Dakota and Texas. With more than 10 years of experience in community journalism, he has won a number of state, national, and international awards for his writing and photography including best newspaper design by the Associated Press Managing Editors Group and the international iPhone photographer of the year by the iPhone Photography Awards. He most recently worked as editor of Community Impact Newspaper covering a number of Dallas-Ft. Worth communities on a hyperlocal level. Contact Kyle G. at kyle.horst@thefivestar.com.
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