The Federal Emergency Management Agency’s (FEMA) new risk rating changes for its National Flood Insurance Program (NFIP) could lead to millions of homeowners seeing noticeable increases in flood insurance costs, a new report by ValuePenguin.com has found.
ValuePenguin’s analysis of the FEMA’s new risk rating system for the NFIP – dubbed “Risk Rating 2.0,” which takes effect October 01 – found that 3,846,702 homeowners will see rates increase under the new rules, while only 1.2 million homeowners will see their flood insurance premiums decrease.
Other key findings of ValuePenguin’s report include:
- The highest NFIP insurance price surges will affect only 192,836 (or 4%) of the 3,846,702 homeowners who will see rate increases once Risk Rating 2.0 goes live.
- The largest proportion of homeowners in Hawaii (87%), Texas (86%), Mississippi (84%), West Virginia (83%), Florida (80%) and Louisiana (80%) will see their flood insurance premiums increase under Risk Rating 2.0. In addition, over 10,000 homeowners each in Florida, Texas, Louisiana, New Jersey and New York will face the highest price increases.
- Over eight in 10 existing flood insurance policies in Alaska will see immediate decreases due to Risk Rating 2.0. Also, at least half of the policies in the District of Columbia, Maryland, Michigan and Utah will have lower rates.
- FEMA’s rate changes promise to correct the issue of policyholders paying rates that do not reflect the true flood risk they face, but rate increases will be moderate. Most homes will not experience year-over-year price hikes that are more than 18%.
ValuePenguin insurance data analyst Andrew Hurst warned that homeowners should be aware of the limitations of a federally backed insurance flood policy, particularly when the coverage has a 30-day waiting period before it takes effect.
“Between the time you purchase a policy and the date when that policy becomes effective, you effectively have no coverage from flood damage,” Hurst explained.
The analyst also cautioned that with the hurricane season approaching, homeowners cannot just purchase flood insurance right before a storm hits. Hurst suggested that they should consider purchasing private flood insurance, which can be cheaper than the NFIP, allows for more customization, and has a shorter waiting period (10-14 days, compared to 30 days).
Read more: Flood premiums set to soar
An earlier report by First Street Foundation in February projected that homeowners living in high-risk floodplains will be charged as much as four times their current NFIP premiums. In response to this, FEMA issued a statement explaining that First Street’s analysis is “misinformed and setting public expectations that are not based in fact.”