The Federal Emergency Management Agency (FEMA) is working on a plan to update and extend the National Flood Insurance Program (NFIP), which Congress may or may not go along with as it considers new flood insurance policy. The proposal could change the way NFIP calculates the rates for homeowners, possibly saving money for some people but raising the cost significantly for others – notably those in flood areas or facing other risk factors.
Rather than levy premiums based on the dollar amount of insurance a homeowner wants, NFIP might operate more like property insurance, weighing a roster of risk variables and personalizing premiums.
Currently, flood insurance rates are generally based on the amount of coverage a homeowner wants and the risk of flood faced – largely whether the home is inside or outside a FEMA-designated flood zone.
Florida – home to about 35 percent of all NFIP policies – could see a major impact from proposed changes if they become official, though plan details have not yet been announced, and it’s unclear how any specific homeowner might be affected. However, it’s likely that homeowners in flood zones would see an increase in their flood insurance costs.
When asked by Bloomberg to comment on proposed changes, FEMA offered a statement by David Maurstad, deputy associate administrator for insurance and mitigation. He said the new system “will help customers better understand their flood risk and provide them with more accurate rates based on their unique risk.” According to the theory, homeowners who understand their flood risk will be more willing to buy coverage.
Bloomberg says FEMA’s document offers an example of two homes in a 100-year flood plain. One may sit near the edge and be threatened by only one type of flood event. FEMA says this home might see its costs drop by 57 percent. A second home in the middle of a flood plain facing multiple types of flood threats, though, could see its flood insurance costs more than double.
However, a FEMA spokesperson also said that some of the information given to Bloomberg is no longer accurate – but didn’t say which parts.
FEMA calls its new flood-pricing proposal Risk Rating 2.0 and says it’s being released at a time when climate change is influencing the national program, which is already in deep debt.
Congress is simultaneously working on its own flood insurance update, and committees meeting this week will discuss it. It’s unclear how much FEMA’s plan could influence Congressional actions. However, FEMA says it has the authority to update NFIP on its own even if Congress fails to pass a comprehensive plan.
Source: Bloomberg, March 12, 2019, Christopher Flavelle© 2019 Florida Realtors®