Who gets hit by FEMA flood insurance rate increases?

Thu Feb 24 2022

Close-up of a colorful digital map

Homeowners who get their flood insurance from the Federal Emergency Management Agency (FEMA) may see their premiums go up starting on April 1, 2022﹘that is, if they haven’t seen rates increase already. The agency announced a change to its rating system late last year and has been rolling it out ever since.

The result? Approximately 82 percent of single-family homeowners insured through FEMA’s National Flood Insurance Program (NFIP) have seen or will see flood insurance rate increases.

Where will NFIP flood insurance rates increase the most?

FEMA has provided an interactive map, developed by The Pew Charitable Trusts and the Association of State Floodplain Managers, to help homeowners identify if their property will see a rate increase. Highlights include NFIP flood insurance rate increases for approximately:

  • 89% of Texas single-family homeowners.
  • 88% of Florida single-family homeowners.
  • 87% of Mississippi single-family homeowners.
  • 85% of Alabama single-family homeowners.
  • 83% of Louisiana single-family homeowners.
  • 80% of South Carolina single-family homeowners.

Homeowners in coastal states will likely be hit hardest by the flood insurance rate increase caused by Risk Rating 2.0. This is partly due to the annual hurricane season that generates significant rain and storm surges that make these properties extremely susceptible to flooding. However, floods can happen anywhere it rains, so in reality, flood insurance is for everyone.

Let’s take a deeper look at exactly what this new rollout is about and how it works.

Why are FEMA flood insurance rates going up?

The main reason FEMA’s flood insurance rates are going up is because the agency has overhauled the way it sets prices. Called Risk Rating 2.0, the new methodology applies what FEMA describes as cutting-edge technology to current flood maps in hopes of creating premiums that better represent policyholders’ actual risk.

FEMA’s previous rating methodology, which had not been updated since the 1970s, focused on a property’s elevation within a given flood zone as outlined on the Flood Insurance Rate Map (FIRM). But under that system, certain communities paid more than their fair share of flood insurance premiums.

Risk Rating 2.0 takes into account new ways of understanding flood risk through:

  • Private sector data sets.
  • Improved catastrophe models.
  • Advanced actuarial practices.

As a result, the new rating methodology reduces rates in areas with less risk for flooding and increases them for areas where floods are more likely. That’s why FEMA refers to Risk Rating 2.0 as “equity in action.”

The rollout for Risk Rating 2.0 began on October 1, 2021, for new policies and policies up for renewal. Starting on April 1, 2022, the remaining policies will be subject to the new rating.

What risk rating 2.0 is not changing

Even though its rating system is changing, FEMA is keeping some elements, particularly those that are required by law. Perhaps the most important of these is the maximum annual price increase of 18 percent for most rates. Flood insurance rate increases will be gradual and always within the mandatory 18 percent cap where it applies.

Another aspect of the FEMA insurance program that won’t change is the use of FIRMs to determine who is required to buy flood insurance. FIRMs will also continue to be used to develop floodplain management building requirements.

Finally, areas that participate in the Community Rating System will still be eligible for discounts between 5 and 45 percent based on the community’s classification. Because Risk Rating 2.0 doesn’t use flood zones to determine flood risk, the discounts will be applied uniformly to all policyholders within the community. This means homeowners in Special Flood Hazard Areas may also qualify for discounts.

How to avoid NFIP flood insurance rate increases

The most important step you can take to avoid a flood insurance rate increase is to pay attention to your policy’s expiration date. NFIP policies do not automatically renew. Instead, the NFIP sends a renewal notice by mail, and then you contact the entity that sold you your policy. The notice should include any changes to your premium.

If your renewal notice indicates a significant increase, then you may want to start shopping for private flood insurance. We suggest getting several quotes so you can compare what’s available from private flood insurance providers to the NFIP’s renewal terms.

For example, you may want to check out our flood insurance endorsement that you can add to your home insurance. Premiums start at just $175 per year, and the coverage limits are higher than what an NFIP policy usually offers.


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