Millions of homeowners, including most of the 1.7 million homeowners in low- or moderate-risk areas with cheaper and voluntary policies, may pay hundreds of dollars more for flood insurance under a new federal flood insurance program that came out this fall.
The new insurance program, called Risk Rating 2.0, will take into account the different characteristics of an individual property, such as the cost of rebuilding, if they face more than one type of flood risk, and proximity to water. As hurricanes and rainstorms grow stronger due to climate change, these risks will also increase.
There will be increased prices for approximately 75 percent of the 4.9 million federal flood insurance policies, with decreased prices for those leftover. Those with voluntary policies will have a projected 90 percent price increase, FEMA reported. There are concerns that these increases will make it difficult to convince homeowners to purchase or keep voluntary flood insurance, especially for the middle- and working class.
"We have no high-rise condominiums, we have no sandy white beaches. It is a working coast in our state," said Louisiana's Insurance Commissioner Jim Donelon.
Over time, the agency also plans to get 50 percent more in premiums with the new program.
"We've learned that the old way of looking at risk had lots of gaps, which understated a property's flood risk and communicated a false sense of security," said David Maurstad, a senior executive of the National Flood Insurance Program.
FEMA said it hasn't studied how the higher rate would impact voluntary coverage nor have they released information detailing how much premiums will increase past the first year. Risk Rating 2.0 will more accurately show a home's flood risk, but the increased cost "may mean that insurance for some properties is considered unaffordable," according to a Congressional Research Service report.
In spite of identifying more flood risk across the country, the new system doesn't change who is required to buy coverage. In areas FEMA deems highest risk—known as the 100-year flood zone—flood insurance is required on government-backed mortgages and many banks also require it for mortgages in high-risk areas. FEMA has said the flood maps aren't meant to predict where flooding may occur, but say where coverage is required and help communities make building decisions.
In recent years, homeowners living in places where coverage isn't required have faced losses in the billions of dollars. Between 2017 and 2019, nearly 40 percent of the flood claims FEMA received were for properties that fell outside zones where insurance is required, an agency representative told Congress last year.
Many properties outside the flood zones face risk "that has always been there but has never been identified," said Matthew Eby, executive director of First Street Foundation, a research firm that produces detailed maps of flooding risks.
First Street estimates that 14.6 million properties across the U.S. are at substantial risk of flooding, far more than the number of flood policies federal government insures. A Government Accountability Office report this year recommended that the federal government update the rules on who is required to get coverage to protect more high-risk homes from flood disasters. A separate GAO report found FEMA's flood maps do not reflect the latest climate science or key flood hazards such as heavy rainfall.
Raising rates and having more people opt for coverage also matters for the financial health of FEMA's flood insurance program, which is $20.5 billion in debt. Since its launch in 1968, many insurance experts say the program has deeply subsidized flood insurance by not charging rates that properly reflected a home's risk. The federal government underwrites most flood insurance policies in the U.S.
For new policy holders, FEMA's new rates took effect in October. For existing policy holders, new rates start taking effect in April. Since rate hikes are capped at 18 percent a year, it will take years for some to reach their new rates. Policyholders can call their insurers to get details on how their rates will change. Unlike before when broad groups of policies saw increases, Risk Rating 2.0 will adjust prices individually.
Higher rates will make flood risks clearer, and ideally encourage more homeowners to get insurance in areas where coverage is voluntary, said Joel Scata, a lawyer at the Natural Resources Defense Council, an environmental advocacy group. He said that Congress should act to address affordability for lower-income families.
Aric Pohorelsky, a Lake Charles resident, envisions another scenario. He pays $517 a year for flood insurance on a 3,700 square-foot home, but said the same policy would cost $5,000 for a new homeowner.
"If people leave in vast numbers ... I don't think it's going to be because of Risk Rating 2.0," he said. "I think it'll be just because of the stress of dealing with major hurricanes."
The Associated Press contributed to this report.
