Compared to Home Insurance, Flood Insurance has always seemed a bargain. In certain areas, that will no longer be the case.
Hundreds of thousands of Americans will pay significantly more to insure their homes in coastal areas and flood zones under new rules released last Thursday by the Federal Emergency Management Agency (FEMA).
This is the first major update to its National Flood Insurance Program’s (NFIP) pricing system in 50 years!
New premiums will be based on a property’s value, risk of flooding and other factors, rather than simply on a property’s elevation in a flood zone.
The new pricing system will take effect on Oct. 1, 2021, for new policies and April 1, 2022, for the rest.
This comes on top of recent increases in Flood insurance rates.
The National Flood Insurance Program took average increases of 12% and 11% in 2019.
And starting April 1, 2021, they tacked on another 10.2% increase.
The reason for the increases is due to hurricanes from Katrina to Sandy to Harvey to Michael bankrupting the reserves NFIP uses to pay claims.
Each time a new storm causes damage, FEMA has to ask Congress to allocate funds to pay for it.
And Congress is sick of fiddling with stop gap measures – they want a permanent fix.
And that means raising premiums for Flood Insurance.
Homes in Low-Risk flood zones have been subsidizing those in High-Risk Zones
Yes, its true. Modest homes, far from the coast, have been paying the same rates as some Oceanfront mansions on the water.
Houses that are least likely to flood paid more than their real risk of actual flood damage.
While homes most likely to experience flood damage paid less.
The new methodology leverages industry best practices and cutting-edge technology to enable FEMA to deliver rates that are actuarily sound, equitable, easier to understand and better reflect a property’s flood risk.
Who is this update going to affect the most?
FEMA now has the capability and tools to address rating disparities by incorporating more flood risk variables including:
- Flood frequency
- Multiple flood type – river overflow, storm surge, coastal erosion and heavy rainfall
- Distance to a water source
- Property characteristics such as elevation and the cost to rebuild.
So who will this impact the most?
- Homes in low lying areas
- Homes along the coast
- Homes that have low elevations over the Base Flood plane.
- Homes that have a higher cost of rebuilding.
Is there any way to lessen the impact of these higher Flood Insurance rates?
Now would be a good time to explore other options for insuring against Flooding.
One option is Private Flood Insurance.
Private Flood Insurance has been around for years but never really got any traction with the public.
NFIP rates were so low that it was hard for Private Flood Insurance to compete.
With higher rates coming from the NFIP, it might make sense to check into these policies as they become more competitive.
Another option might be a Flood Insurance Endorsement to your home insurance policy.
This is where your current Home Insurer offers Flood coverage as an endorsement to your home policy- and they usually do so at a competitive rate.
Not all companies offer these at this time, but more and more may start once the NFIP completes the new system introduction.
Progressive Home Insurance offers one that’s quite reasonable.
Of course, contact Cronin Insurance for all your Flood Insurance needs!
