Expected Changes in Costs for Flood Insurance

The National Flood Insurance Program has not been updated since it was first created. However, the methods used to determine flood risk and flood insurance premiums are incredibly outdated due to the impact of climate change. Instances of extreme weather are increasing and the metrics by which flood risk is measured have changed drastically.

In response to these changes, the Federal Emergency Management Agency (FEMA) is making extensive changes to the National Flood Insurance Program (NFIP) to update it and account for modern flood activity. Any homeowners in FEMA-designated flood zones are required to purchase insurance but many people with low-value homes are overpaying. On the other hand, people with expensive homes are paying less than they realistically should be.

The changes are designed to address these issues and they came into effect on October 1st. However, a lot of people that currently have flood insurance are unsure how they will be affected. If you have flood insurance in Florida, it's important that you know whether your costs will go up and down and how the new premiums will be calculated. This guide will tell you everything you need to know about flood insurance, how much it will cost, and what changes will affect you.

Why Are The Changes Being Made?

There are a number of reasons why FEMA is introducing the new Risk Rating 2.0 system. Firstly, they are hoping to create a fairer system where homeowners pay premiums that are more in line with the level of risk and the value of their property. At the moment, many people with low-value properties are paying higher rates to subsidize the underpayments of people with more expensive properties.

The changes are also there to make the NFIP more viable in the face of climate change. With an increase in extreme weather events, many people with no insurance are being affected by flooding. In a lot of high-risk areas, the insurance premiums are not high enough to make payouts financially viable, so the NFIP could easily find themselves in a very difficult fiscal position. By updating the system and introducing the new changes, FEMA hopes to create a fairer system that is better equipped to handle new challenges presented by climate change.

What Changes Are Being Made In Risk Rating 2.0?

In the past, flood zone mapping was the main method for calculating flood risk in a given area. However, as climate change makes the situation more complicated, this is not always adequate. They also used an 'elevation certificate', which is a measure of how far above water your home is. FEMA is moving away from this method and basing their assessments on a different set of criteria.

Probable inland flooding

All insurance premiums, whether it is for a car or a home, will be calculated based on the level of risk. This is no different with flood insurance and the NFIP will consider the probability of inland flooding in the area.

Historical storm surges

Data about historical storm surges can also be used to assess the likelihood of flooding. In areas where there have been a lot of storms in the past are more likely to experience high levels of rainfall in the future, leading to floods.

Cost to rebuild the property

The cost to rebuild the property if it is damaged by flooding will also be considered. Under the current system, people will pay the same premiums on a $1 million home or a $200,000 home, which is where a lot of the discrepancies and over or under payments come from. Under the new scheme, estimates from contractors and surveyors will be used to determine how much it would cost to rebuild the property after a flood, and this will be taken into account when your insurance premiums are being calculated.

Historical losses

Historical losses, meaning damage that has been caused by flooding in the past, gives an indication of the level of flooding danger and how much damage will be caused. This will also be used to calculate your cost for flood insurance.

Elevation

Elevation drastically reduces flood risks. Properties that are higher above sea level are more protected from flooding. Although the NFIP is no longer using elevation certificates as part of their calculations, elevation will still be considered.

Natural surroundings and barriers

Natural and man-made protection can help to reduce the damage caused by flooding. When working out the cost of flood insurance in Florida and throughout the US, the NFIP will now assess any natural protection as well as man-made flood barriers that are in the area. In heavily protected areas, you can expect to pay a lower premium, in many cases.

What Is Staying The Same?

Although many things are changing under the new system, there are aspects that are staying the same. Some of these things are designed to protect against rising costs, so many homeowners are anxious to find out exactly what will change and what will stay the same.

Limited Annual Price Increases

Any existing limits on increases to the cost of flood insurance will stay the same. This means that your premiums cannot increase more than 18% per year.

Flood Insurance Rate Maps (FIRM) For Floodplain Management

Flood map data will continue to be used to inform the rates for insurance in different communities. They will also be used for floodplain management planning.

Flood Insurance Rate Maps (FIRM) For Floodplain Management

Flood map data will continue to be used to inform the rates for insurance in different communities. They will also be used for floodplain management planning.

Simplifying The Transition To Risk Rating 2.0

There are a number of features that are being maintained, so the transition to the new system is as simple as possible for homeowners. Policyholders will still have the option of transferring any discounts when they sell their property.

Policyholders will still be able to get discounts by participating in the Community Rating System. This means that communities can work to protect the local area from flooding and get a discount as a result.

Will The Costs For Flood Insurance Increase Under Risk Rating 2.0?

The big question on everybody's minds is, will my cost for flood insurance increase under the new scheme? There is no simple answer here because it all depends on where you live and the value of your property.

The rates will increase for some people and decrease for others. Throughout the US, it is estimated that a large percentage of homeowners will see their rates increase around 10%, which is the standard annual increase. This rise is designed to remove inequality between low-value and high-value homes, so people with cheaper homes are no longer subsidizing the insurance costs of those with expensive properties.

It is estimated that 1 in 5 residents in Florida will see a decrease in their flood insurance costs. However, 1 in 25 people can expect an increase.

According to FEMA projections, 20% of people in Florida will see an immediate decrease in their insurance premiums. 68% of people will see an increase of $0-$120 per year ($0-$10 per month). 8% of homeowners will see an increase of $120-$240 per year ($12-$24 per month). The remaining 4% of people can expect an increase of more than $240 per year. You can find a detailed breakdown of the expected changes to the National Flood Insurance Program in Florida.

You can find a full list of the new premiums for each state's new Risk Rating 2.0 State Profiles.

Can You Reduce The Cost Of Flood Insurance In Florida?

If you are concerned about increasing flood insurance costs, you’ll be happy to know that there are methods outlined by FEMA to help you reduce your rates. The state will help communities and work with them to find ways to manage flood risk and reduce their flood insurance premiums.

The Community Rating System

The Community Rating System is a voluntary program that communities can sign up for. It incentivizes people to engage in community floodplain management activities that exceed the base expectations of the NFIP. There are over 24,500 communities nationwide that are part of the community rating system.

Currently, policyholders in Community Rating System areas save an average of 15% per year ($162), so it’s an incredibly effective way to manage your flood insurance costs. At the moment, there are 259 communities around Florida that are part of the Community Rating System.

Hazard Mitigation Assistance Grants

The government offers hazard mitigation assistance grants to help homeowners that want to make changes and reduce the potential damage caused by flooding. The grants are available for post-flooding and pre-flooding projects. The grants will be available from October 2021 for new policyholders but existing policyholders will have to wait until April 2022 before they can apply.

The grants can be used for things like installing flood openings, elevating structures, and elevating machinery and equipment onto the first floor. All of these things will help to manage the risk of flooding and, in turn, reduce your rates.

For the majority of homeowners, there will be some increase in the cost of flood insurance. So, it is important that you check whether your premiums will change. In most cases, the increase will be minimal, so you don’t need to be too concerned.

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