April 3, 2021

Fancier Homes Mean Higher Insurance Premiums Under New Flood System

Storm surge surrounds a home as Hurricane Delta makes landfall in Port Arthur, Texas, in…

Photographer: Luke Sharrett/Bloomberg

The Federal Emergency Management Agency on Friday unveiled the details of an overhaul to its beleaguered National Flood Insurance Program, the initiative’s first major update in 50 years. Most homeowners in the program will have lower or stable premiums, but roughly 11% of homes—largely the highest value ones—will see increases in premiums of at least $10 a month. Those could continue to rise until they reach a cap of $12,000 a year.

The NFIP serves roughly 5 million homes, most of which are in high-risk flood areas. Premiums have risen steadily over the years, and yet the program is more than $20 billion in debt, in part because of climate change-related phenomena such as sea-level rise and increased storms and heavy precipitation events, which lead to more intense and more widespread flooding.

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Up until now, FEMA used a fairly simple methodology developed in the 1970s that based risk ratings on two factors: whether homes were inside a severe flood zone, and if so, their elevation within those zones. FEMA says its new model, Risk Rating 2.0, is based on huge advances in technology, including sophisticated catastrophe models that are standard for the private insurance industry.