National flood insurance is changing. Some owners face huge premium increases
Chris Dailey and his wife are building a new home on the coast of St. Petersburg, Florida that will be 7 feet above expected flood level during a major storm. He was therefore amazed to learn that under the new pricing of the federal flood insurance program, his annual premium would drop from $ 441 to $ 4,986.
“This is absolute madness,” said Mr. Dailey, 52. “This rate does not make sense.” He said he plans to complete the project, which is about a block and a half from a canal that leads to Tampa Bay, but is worried about the possibility of selling it in the future.
The National Flood Insurance Program, the leading provider of flood coverage in the United States, with more than five million policies, is rolling out a revised pricing methodology starting Friday in an attempt to more accurately reflect the flood risk at which individual properties are confronted. The problem has grown in importance with climate change, which scientists say is fueling sea level rise and contributing to more severe weather conditions.
Under the new system, dubbed “Risk Rating 2.0”, some policyholders in particularly vulnerable areas will face large premium increases while others in less exposed locations will see smaller increases or even decreases. Homes in high-risk flood-prone areas with mortgages from government-backed lenders must have flood insurance, and private carriers also offer coverage in some areas.
The changes could cause some owners of floodplains across the United States, particularly along the Gulf Coast and East Coast, to make tough decisions about whether they can afford to live there. according to insurance and real estate specialists. Some buyers may find mortgages inaccessible, making waterfront living more and more the preserve of the wealthy. Developers can rethink where they build, and coastal real estate markets could take a hit.
“There is no better risk communication tool than a pricing signal,” said Roy Wright, president of the Insurance Institute for Business and Home Safety, an industry research group and former chief of the federal flood insurance program. “For middle income neighborhoods, this will become a real consideration,” he said.
As part of the program’s decades-long pricing system, the main variables considered were the location of a property on a flood map and its elevation. The new system takes into account a wider set of factors, including a property’s distance to a body of water, its height to the first floor, and the cost of rebuilding it.
The previous method resulted in price imbalances, with policyholders of lower-value homes often subsidizing those of higher-value homes, according to the Federal Emergency Management Agency, which manages the program.
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“Risk Rating 2.0 corrects this injustice,” said David Maurstad, senior program manager.
Groups, including the Association of State Floodplain Managers and Taxpayers for Common Sense, support the changes, saying the updated pricing will encourage homeowners to pursue mitigation measures, such as raising homes or adding flood vents, to reduce the risk of flooding.
As of Friday, the new policies will adjust to the new full rate. For existing policies, the changes are effective April 1, 2022, with annual increases capped at 18% until they reach the full rate.
According to a FEMA analysis, 23% of policyholders will see their premiums drop in the first year, 66% will see increases of up to $ 10 per month, 7% will see increases of $ 10 to $ 20 and 4% will have increases of more than $ 20.
Jake Holehouse, president of HH Insurance in St. Petersburg, said the analysis led him to believe homeowners could absorb the impact. But after gaining access to the new system a month ago and getting quotes, he found plenty of examples of big rate hikes. The exact reason is unclear as the new pricing algorithm is not public, but Holehouse believes one of the main reasons is the inclusion of the replacement cost variable.
Her client Tyler Payne, the mayor of nearby Treasure Island who lives on a canal, currently has a policy with the Federal Flood Insurance Program with an annual premium of $ 2,710. At renewal time, that is about to start climbing to a full rate of $ 5,415, Mr. Holehouse said.
“When you buy a home, you factor in all of these costs,” said Payne, 31. “For one of them to potentially double in the next few years is a game-changer.”
Carl Schneider, an insurance agent in Mobile, Alabama, said he didn’t think the new pricing method would prove too disruptive. Among the customers he has compiled the numbers for, some are seeing jumps, but many are ready for cuts.
“It’s a mixed bag,” he said. “You will see the majority of consumers very satisfied with the way the program more accurately assesses their home. “
Some members of Congress, mainly from coastal states, are calling for a delay in implementing the new rating system. Senators including Chuck Schumer (D., NY) and John Kennedy (R., La.) Wrote to the FEMA administrator last week, expressing concern over sharp increases in premiums that could become unaffordable for employees. owners.
The new system could affect the decisions of buyers and builders. WinWay Homes, a custom home builder in South Pasadena, near St. Petersburg, canceled the purchase of a property a few weeks ago because it is in a flood-prone area and may be more difficult to sell due to changes to flood insurance, the owner said. Matt Carr. He said property prices outside flood-prone areas are rising rapidly while those inside flood-prone areas that are not on water remain stable.
“Even though I pay more money outside of a flood zone, I’m more comfortable being able to sell it to someone,” Carr said.