Big changes to NFIP mean higher premiums
If you’re a homeowner or thinking of buying a home in Florida, you may want to read up on the latest flood insurance policy changes. The Federal Emergency Management Agency (FEMA) is in the midst of rolling out one of the biggest changes to the National Flood Insurance Program (NFIP) since the program was established by Congress more than 50 years ago.
FEMA began implementing the new risk-rating system for flood insurance premiums — known as Risk Rating 2.0 — for new policyholders on Oct. 1, while changes for existing policyholders won’t take effect until April 1, 2022. So why is FEMA adopting this new system, and what does it mean for policyholders in Florida?
For decades, FEMA’s risk-rating system placed properties either in or out of the “100-year” event floodplain. This led to a false sense of security for many who thought their home would flood only once in their lifetime.
Additionally, FEMA’s own data indicate that low-income policyholders have been subsidizing the rates of higher-income homeowners, including those owning multiple homes, for decades. The new risk-rating system is a game changer, as it considers factors such as home value, distance from the water, and first floor elevation when determining the flood risk of a property, and then calculates the flood insurance premium based on that risk.
By more accurately reflecting flood risk in insurance premiums, residents in the designated floodplain can be better educated and prepared for the next flood.
But the new risk-rating system does have some serious flaws that could jeopardize its success if not properly addressed between now and April 1. For one, it’s unclear whether and how this change will actually increase equity for policyholders.
FEMA’s own analysis for Florida indicates that 20% of policyholders will see immediate decreases in their premium costs under the new risk-rating system, while 68% will see an average increase of $0 to $10 per month, 8% will see an average increase of $10 to $20 per month, and 4% will see an average increase that exceeds $20 per month. Other states see far greater decreases than Florida, perhaps due to the high-value homes along Florida’s floodprone coast.
That’s just in the first year, however, so the costs could continue to grow the following year and the year after that, but by law, the rates cannot be increased beyond the limit of 5-18% per year for primary residences.
Given these complexities, FEMA needs to be transparent about the increases homeowners could see in subsequent years and must do more meaningful outreach to communities, particularly those still reeling from the damage cause be Hurricane Ida or storms that struck in 2020.
If the new rating system isn’t paired with a program that makes flood insurance affordable for residents — particularly those living on fixed or low incomes, or who reside in historically underserved communities — FEMA’s plan to restructure federal flood insurance rates will fail those most in need and fall short on the Biden administration’s commitment to advance racial equity.
Critically, the new risk-rating system considers only present-day flood risk, not future flood risk, which is a fundamental flaw as the lifetime of a mortgage is typically 30 years. Given that a home is a major investment for most people, homebuyers must be able to make informed decisions based on the latest science and future climate change risks, including sea-level rise and extreme rainfall.
A recent analysis by the Union of Concerned Scientists found that accelerating sea-level rise, primarily driven by climate change, would put more than 64,000 of Florida’s coastal homes, which shelter more than 100,000 Floridians and are worth about $26 billion today, at risk of chronic inundation by 2045.
By ignoring these future flood risks, FEMA is all but ensuring that homeowners will be caught unaware as flooding becomes more frequent and extensive.
Floridians and people across the United States need Congress and FEMA to commit to getting this right. For FEMA’s risk-rating system to be more equitable, it must be paired with an affordability program with funds appropriated by Congress.
The good news is the Build Back Better Act includes $1 billion for FEMA to develop a means-tested affordability program, as well as $3 billion for the agency to conduct flood hazard mapping and a risk analysis. Congress must maintain these critical policy provisions as it moves this legislation forward. Failure is not an option. If the bill doesn’t pass, Congress will need to step up quickly with separate NFIP reform legislation.
With climate change bearing down on communities across the nation, FEMA must also turn swiftly to developing and releasing a “Risk Rating 3.0” that includes future risks of tidal flooding and extreme rainfall events that many communities are already grappling with and that will become more frequent and intense as the planet warms.
Shana Udvardy is a climate resilience analyst at the Union of Concerned Scientists (UCS) and an author of the UCS report “Underwater: Rising Seas, Chronic Floods and the Implications for U.S. Coastal Real Estate.”
“The Invading Sea” is the opinion arm of the Florida Climate Reporting Network, a collaborative of news organizations across the state focusing on the threats posed by the warming climate.