Federal flood insurance has become more expensive for millions of Americans, after the government changed the way it pricing its policies.
But there’s good news, too: Prices will actually come down for some homeowners, and existing policyholders will get a breather on when they might have to pay higher premiums.
Effective October 1 for the new policies, the change to the National Flood Insurance Program withstood a recent storm of opposition from a bipartisan group of federal lawmakers angry at price hikes, along with some trade groups that said the new program was not yet ready to launch.
The Federal Emergency Management Agency (FEMA) stood firm. The agency acknowledges that more than three-quarters of the 5 million or so homeowners with policies under the National Flood Insurance Program are likely to pay more under the 2.0 risk rating, which is now in effect for new policyholders and begins April 1 for those who They currently have coverage.
NFIP policies cost an average of about $1,800 per year, and price increases can exceed $240 per year for some homeowners.
But FEMA and other experts say the new system will be fairer and more equitable. As this FEMA chart shows, the agency says most homeowners will experience modest hikes — no more than $10 a month. And more than one in five policyholders—many of them in less valuable homes—will pay less for coverage.
Much lower, in fact, because homeowners’ premiums will drop an average of $86 a month. Only 4% of policies will increase by $20 or more per month, although the agency did not provide an average increase for that group.
Here’s a summary of who will pay more (and less) for flood insurance under the new rules, and what you can do now to get the best flood insurance deal.
Winners and losers from the changes
The update, which FEMA calls Risk Rating 2.0, is the most comprehensive change to NFIP since the program was launched in 1968 to protect property from flooding, which regular homeowners insurance doesn’t.
In recent years, private insurance companies have begun to compete with NFIP by using new weather data and sophisticated flood modeling to better predict the probability of a flood for any one property.
The new FEMA chart will use some of these developments to reduce reliance on historical – and sometimes old – FEMA neighborhood maps to determine premiums.
Among other changes, the new risk ratings will take into account the home’s height and proximity to large bodies of water. As a result, prices can fall, for example, for a hilltop house within a flood-prone neighborhood, which can currently have a premium similar to similar properties located down the hill and by the river.
And since prices now tend to be consistent for all housing at one address, those who live on higher floors will now take credit for the lower likelihood of their property flooding, says Lindsey Erickson, CEO of National Flood Services, a company that trains and supports insurance agents. In the sale of flood insurance policies.
Prices will also largely reflect the replacement value of the property more than the current time. This makes owners of beachfront mansions among the potential losers from new rating programs – due to the greater focus on the location of the home and greater emphasis on the cost of replacing it. So, too, those who have any other house, even a modest one, will be in a precarious location—neighbors, in the example above, who live by the river below that house on top of a hill.
What current policyholders should do
If you currently carry flood insurance, you can relax, at least for a while, since the impact of Risk Rating 2.0 won’t be fully implemented until April 1, 2022.
Renovations after this date will fall within the new rating criteria – but with a caveat that helps those whose prices will go up. Under the program, your premium cannot rise more than 18% annually. This means that if the new “2.0” premium is a bigger increase than that percentage, you’ll be protected from the rest until at least next year.
So, for example, if your rate is assigned a 25% increase, you’ll pay 18% of it on your first renewal, and then the remaining 7% on your second renewal – plus any new increases due to other factors that year. Not only that, but your heights are also limited to that percentage forever, no matter what the reason for the increase is.
While the potential for your prices to rise is very local, right down to your property, FEMA has created summaries by state of how many properties will see prices rise and fall, and by how much.
What new shoppers for flood insurance should do
New prospective flood insurance clients do not need, nor should they, allow NFIP changes to prevent them from considering policy. Coverage can provide worthwhile and cost-effective protection, even if you are not located in a flood zone.
Reasons for obtaining protection include restrictions on federal disaster funds for flood assistance. Flood assistance may not be granted in your area, and even if it is, the money is much less than the homeowners’ losses.
Also, keep in mind that when the risk of flooding is low, so are the premiums. Adding a flood policy in such an area may be more affordable than you think. As noted, most rate hikes under the 2.0 risk rating will be modest – no more than $100 or so per year.
A homeowners insurance agent can help you with pricing an NFIP policy. Erickson also advises asking your agent about private insurance policies, since this competition is becoming increasingly competitive in many states and may offer a valuable alternative to real estate that will see increases in the fund’s National Insurance premiums under the new rating system.
“We are seeing some great things coming out of the private market, and we are very excited about that. If these policies help insure more people against flooding, that is the goal after all.”
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