New federal flood insurance rates that mirror real risks of climate change are here.

American Dream of Coastal Living to Become More Expensive

At the beginning of October, homeowners who are fortunate enough to be living near white sandy beaches and wispy ocean breezes are going to notice a drastic change in their federal flood insurance premiums.  Federal government subsidies that have been keeping the federal flood insurance program afloat will disappear…premium holders will, for the first time, become wholly responsible for their home’s flood insurance coverage.

Also a first, the new unsubsidized rates are to take into account the size of the house.  This means that larger homes by the ocean will see bigger bumps in their flood insurance coverage than smaller homes.

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Wetter World Means Higher Premiums

The National Flood Insurance Program was created by Congress in 1968 and is run by the Federal Emergency Management Agency (FEMA.)  Because private insurers usually don’t offer flood insurance to its policyholders, the National Flood Insurance Program is the primary provider of flood insurance.

FEMA has, up until the beginning of October, priced flood insurance premiums based mostly on whether or not a home is inside a so-called 100-year flood plain, land that is expected to flood during a major storm.  With climate change upon us, this method of pricing flood insurance premiums has nothing at all to do with today’s reality of intense rainfall, flooding and high winds.  And again, with climate change upon us, many homeowners pay premium rates that have nothing at all to do with their true risk.

FEMA Instituting New “Risk Rating 2.0” System to Determine Particular Risks of Each Property

This new Risk Rating 2.0 system was developed by the Trump administration, delayed for two years, and is to be implemented in October.  The system is based upon determining what particular risks each individual property has.  For homeowners buying flood insurance for the first time, the program goes into effect in October.  For existing policy holders, rates will begin rising next April.

The average premium has been costing $739 annually and this average cost of $739 is in addition to “regular” homeowner’s insurance coverage provided by private insurers.

One homeowner currently living in flood-prone Tampa FL has been paying $480/year for flood insurance.  Without subsidies under the new system being wheeled out gradually, this homeowner’s rates will eventually hit $7,147/year, according to her insurance agent.

Eyepopping Uptick in Flood Insurance Costs Coming

FEMA, on the other hand, stressed that such impending rate increases around Tampa Bay are unusual.  With 3.4M single-family homes around the country having flood insurance, FEMA emphasized that 2.4M of those homes will see premiums rise no more than $120 in the first year.

In data released by FEMA, 331,000 single-family homes across the country will face increasing costs.  More than 230,000 households will see insurance premiums to up $120 to $240 the first year; an additional 74,000 will see an increase between $240-$360; for about 25,000 single-family homes, costs will jump up between $360-$1,200.  (Half of these 25,000 single-family homes are in Florida.)  And, by the way, FEMA has indicated that some homeowners with flood insurance will see their rates go down.

All of these above costs are for the first year only.  Because federal law prohibits FEMA from raising any household’s insurance rates by more than 18% a year.  This means that about half of flood insurance policyholders won’t see the full extent of their top-level rates for five years while some premium holders will not see their top-level rates for nearly 20 years.

The Choices?  Pay More or Move

According to Melinda Pletcher, a member of the town commission in St. Pete Beach, “The people who are building or buying the houses that have $1M in value, they don’t care.  People that have been living here for 40 years, they may end up not being able to stay.”

Pletcher’s flood insurance premiums will be rising from some $500/year to almost $4,500/year.

By the way, lawmakers on both sides of the aisle from all over the country regardless of their states being coastal or non-costal are not happy with this new Rate Risk 2.0 being implemented in October.  We’ll see if Congress can change the needle on this coming insurance policy.

Thanks to the Federal Emergency Management Agency and The New York Times.





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