81% – 90% of FEMA policyholders are seeing price hikes for flood insurance.

Flood Insurance Policies Pricier due to FEMA Overhaul

According to Redfin, 3.4M National Flood Insurance Program (NFIP) policyholders who owned single-family homes as of May 2020 are seeing rate hikes this year for flood insurance.

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Nearly 90% of flood insurance policyholders living in Texas, Florida and Mississippi are set for higher flood insurance payments; 81% of policyholders throughout the country are set for higher payments.

According to FEMA, most annual increases are capped at 18%.  This 18% cap likely means that many policyholders will see additional annual price hikes in the future.

Premium increases for renewals began going into effect for existing flood insurance policyholders on April 1, 2022.  New policyholders have been accountable to this new pricing system as of October 1, 2021.  Policyholders experiencing decreases on their flood insurance premiums (19%) supposedly began seeing those changes take effect in October 2021 as well.

Background on Flood Insurance Hikes

FEMA revamped its methodology for its National Flood Insurance Program (NFIP) to better mirror actual flood risk by location in the US.  Calling this new methodology “Risk Rating 2.0,” the NFIP evaluates the cost of the policyholder’s premium by looking at the individual residential property’s features (such as foundation type, elevation, replacement cost, distance from water) and not, as it had done in the past, the flood zone.  FEMA also phased out subsidies that may have made flood insurance more affordable for some policyholders.

The reason that 90% policyholders in Texas, Florida and Mississippi are set to experience increases to their flood insurance price tags is because Texas, Florida and Mississippi have higher flood risks than other states.  Also, Texas and Florida are seeing their populations of single-family homeowners swell more than other states due to pandemic-driven migration.

According to the US Census Bureau, Texas gained an estimated 310,288 residents from June 2020 to July 2021, more than any other state.  Florida gained an estimated 211,196 people during this same time period.  Mississippi also gained population during this time period as the pandemic prompted many Americans to seek out more affordable places to live as both home prices and remote working spiked.

Specifics on Impact of FEMA’s Flood Insurance Overhaul During Year One of this Revamp

  • Total 3.4M NFIP policyholders
  • 7M NFIP policyholders to see premium increases starting April 1, 2022
  • 627,000 NFIP policyholders to see premium decreases starting October 1, 2021
  • 81% of NFIP policyholders to see premium increases starting April 1, 2022
  • 19% of NFIP policyholder to see premium decreases starting October 1,2021
  • $645 is average annual NFIP premium as of May 2020
  • $0 – $120 is dollar amount most NFIP policyholders are set to see premiums increase in year one

Most of the policyholders (88%) who will experience increases to their flood insurance premiums will see their premiums rise by up to $120 during this first year.  9% of those policyholders will face increases ranging from $120 to $240.  4% will see increases of $240 or more.

Impact of FEMA’s Flood Insurance Revamp Down the Road in Time

According to Redfin’s Senior Economist Sheharyar Bokhari, “Most policyholders probably won’t feel the burn of FEMA’s price hikes in year one…” due to most increases being capped at 18% per year by law.”

However, Bokhari continued, “…by year five or 10, (until their ‘full risk rate’ is reached) the elevated cost of flood insurance could impact where Americans decide to buy and build homes.  Some people may choose not to renew their flood insurance policies despite increasing flood risk due to climate change, especially as inflation drives prices up elsewhere in the economy as well.  Others may just move to less risky places where flood insurance isn’t required.”

Demographic Disparities in NFIP Premiums

Ethnicity       % of Policyholders         Aver. NFIP Premium

Hispanic              84%                                $497

White                  81%                                 $664

No Major Race      81%                                 $588

Asian                    80%                                $1,090

Black                    78%                                 $587

Pacific Islander       69%                                $1,894

Native Amer./Alaskan  67%                             $638

Premium Costs by Home Price

Home Price       % of Policyholders       Aver. Premium

Under $100K               68%                           $689

$100K-$199,999          76%                            $633

$200K-$299,999          81%                            $591

$300K-$499,999          83%                             $589

$500K-$749,999          83%                              $670

$750K0$999,999         83%                               $842

$1M-$1,999,999         83%                                 $941

$2M or more               83%                                $1,086

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