Here’s Why Your Flood Insurance Rate Might Be Changing

FEMA’s mapping and technology update could make your premium rise or fall

Family in flooded living room
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If your home is covered by the National Flood Insurance Program (NFIP) and your policy is up for its annual renewal, you just might qualify for a lower rate, thanks to a massive overhaul of the program that went into effect this month.

As of Oct. 1, about 23% of homeowners insured by the program who renew their policies will be eligible for rates averaging $86 a month less than before, the Federal Emergency Management Agency (FEMA) said. The decrease is due to a new policy called “Risk Rating 2.0” that changes how FEMA, which administers the program, assesses flood risk for properties and how much it charges in premiums.

On the other side of the new policy’s coin, many homeowners will see annual rate increases—but that part won’t go into effect until April. At that point, about 66% of those who renew policies will either see no increase or hikes of $10 or less per month. A further 7% will see increases of $10 to $20, while 4% of homeowners will see rate hikes of more than $20 a month. That’s compared to an average rate increase of $8 per month under the old rating methodology.  Rate increases are capped at 18% a year for most policies. All new policies written after Oct. 1 will use the new rates also. 

Since most homeowners insurance policies don’t cover flooding, those who wish to protect themselves from this hazard—or who are required to do so, if they live in certain flood-prone communities—buy separate coverage, usually from the federal government through the NFIP. Until now, the program has set rates based on outdated methods of predicting flood risk dating back to the 1970s. Risk Rating 2.0 aims to modernize the system to take advantage of high-tech flood prediction methods and make rates more fairly reflective of a property’s true risk for flooding. 

“The NFIP’s new rating methodology is long overdue since it hasn’t been updated in more than 40 years,” David Maurstad, the program’s senior executive, said in a statement. “Now is the right time to modernize how risk is identified, priced and communicated. By doing so we empower policyholders to make informed decisions to protect their homes and businesses from life-changing flooding events that will strike in the months and years ahead due to climate change.”

The new program has its critics, especially in states that could see widespread rate increases under the new methodology. Sen. Bill Cassidy, a Republican from Louisiana, where up to 80% of policyholders could see rate hikes in the first year, has called for the program to be revised or scrapped.

Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.