New federal flood insurance rates designed to better reflect the real risks of climate change are on the way. The changes to the National Flood Insurance Program mean three-fourths of existing policyholders across the nation will see higher flood insurance bills, following the government’s reassessment of the effects of more frequent and intense storms on storm surge, extreme rain, and river flooding.
Since October, new NFIP policies no longer include subsidized plans that for decades helped prop up home values in some of the most dangerous flood zones. Existing policies may start to see changes in premiums in six months. Dubbed Risk Rating 2.0, the insurance revamp comes after a series of devastating flood events this summer, which killed dozens of people and caused billions of dollars in damages from Louisiana to Tennessee and New York City.
Billy Breaux, gulf regional manager at Orchid Insurance, said the new rating system incorporates more risk variables than previous methodologies, including flood frequency, flood types, distance to water sources, elevation, and costs to rebuild and will allow FEMA to better evaluate risk on their own individual characteristics
Managed by the Federal Emergency Management Agency, NFIP serves roughly 5 million homes, most of which are in high-risk flood areas. FEMA estimates that the new methodology for assessing the likelihood of floods will result in immediate cost reductions for 23 percent of existing policies across the 50 states and District of Columbia.
While the new method for assessing rates will reduce costs on nearly 1.2 million policies, more than 3.8 million policyholders will probably see premiums increase at least $10 per month. That dollar amount could rise until it reaches a cap of $12,000 a year. About 4 percent of the existing policies across the United States will experience the highest rate hikes — greater than $20 a month or $240 a year.
Chris Dailey was stunned to learn his annual premium will soar to $4,986 from $411 under NFIP’s revamped pricing structure. He and his wife are building a new home in coastal St. Petersburg, Fla., where the dwelling will sit 7 feet above the flood level expected during a major storm. Despite the rate increase, the couple plan to follow through with the project, but worry about their ability to sell the home in the future.
Most homeowner policies typically do not cover flooding and, even if it does, additional standalone insurance may be required to truly protect a home or commercial property. Breaux said Orchid Insurance, which offers coverage solutions for coastal risks from Texas to Massachusetts, also provides partner agents access to NFIP and multiple Private Flood markets.
One in 10 American properties are now at significant risk of flooding, according to a Bloomberg analysis. Based on the new risk model, an additional 6 million properties are in danger of flooding, with the majority concentrated in the eastern half of the United States, particularly in Louisiana, Delaware, and New Jersey.
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