Changes coming for FEMA flood insurance

After the severe storms this summer, Farmers Insurance agent Jason Logue has gotten lots of calls at his Bensalem office from people wanting to buy flood insurance.

That is, until he reviewed the rates with them. "You could see a rate higher than your homeowner's insurance, depending on where you live," he said.

That may change, as the Federal Emergency Management Agency is introducing a new program Friday called "Risk Rating 2.0 Equity in Action" to the National Flood Insurance Program.

The NFIP was enacted in 1968 and now people can buy into the national plan through 60 different insurance companies or through NFIP Direct. They can also buy coverage through private insurance but the national plan is backed by the federal government.

FEMA official David Maurstad said the new program will correct "long standing inequities" in current pricing for federally offered flood insurance.

For the first time in the history of the program, he said some policy holders will receive a decrease in their premium payment.

The new plan "is correcting long standing inequities in the current pricing scheme... Policy holders with lower value homes who have been paying more than they should will no longer bear the cost for property owners with higher value homes who have been paying less than they should."

He added, however, that any premiums that will increase in cost won't be changed until April 1, 2022, to allow property owners time to prepare for the adjustment.

A report from research group First Street in February found that the majority of homeowners won't see big rate changes, and others could see premiums decrease. But for some 265,000 properties, annual premiums would need to climb $10,000 or more to match the actual risk. Those with more expensive properties are estimated to see the biggest premium increases, according to a story published by USA Today.

Some of the biggest gaps in current premiums versus actual risk appear in the Southeast and Mid-Atlantic regions including in Florida, South Carolina and New Jersey.

FEMA at the time said the First Street report based its findings on estimates and lacked insight into the new agency initiative.

Under the current plan, a home or business owner's flood insurance is based on a few factors including where the property is located on a flood-zone map, its elevation and and how often a storm occurred that should only occur 1% of the time.

As of Friday, the rate for a new policy owner also will be based on the distance to a coast, ocean, or river; the class of the river; whether the flood is from a water source or rainfall; as well as the ground elevation, first-floor height, construction and foundation type for the home or building, and a broader range of storm indicators.

For now, the new rates will only apply to new policy holders. Policies that will decrease in cost will see an adjustment when their policy renews.

"Typically when changes have been made, it takes us some time to see the impact of the new legislation," Logue said about agents like himself who sell insurance.

In Pennsylvania, the average annual cost of flood insurance is $1,326, one of the highest rates in the nation, according to Quote Wizard by the mortgage broker Lending Tree. Its analysis shows the national average at $958,though FEMA states the national average was $700 in 2019.

A FEMA chart shows that approximately 30% of the 51,600 policies in force in Pennsylvania will see a rate reduction and that 56% of the remaining policy holders will see their rates increase by only up to $10 a month under the new plan.

In a letter to FEMA in August, Gov. Tom Wolf said that flooding is one of the "most significant and recurrent hazards" statewide, and that in 2019 alone, over 5,200 Pennsylvania homes were damaged from flooding events.

Some homeowners must carry flood insurance, including those who live in a high-risk flood area and have a government-backed mortgage, as well as those who have already received federal flood disaster aid.

"If you live in a high-risk flood area and have received federal disaster assistance – including grants from the Federal Emergency Management Agency or low-interest disaster loans from the U.S. Small Business Administration – you must maintain flood insurance in order to be considered for any future federal disaster aid," FEMA notes.

Some residents of Bensalem and Bristol Township received emergency assistance through the SBA following the flood on July 12 that deluged the area with more than six inches of rain in a few hours.

Homeowners, business owners and renters can buy flood insurance through insurance agencies that sell the NFIP program or by buying private flood insurance.

Coverage through the NFIP is normally capped at $250,000, so for someone who wants more coverage, private insurance may be more advantageous. Since it takes about 30 days for NFIP coverage to be enacted, property owners are advised not to wait until a storm is coming to seek coverage.

If a person elevates their home or lives in a community that participates in FEMA's Community Rating System that offers discounts to municipalities participating in the NFIP and that take steps to alleviate flooding, they may be eligible for discounts on the flood insurance policy.

In Bucks County, the municipalities participating as April 1, 2021, are Lower Makefield, Upper Makefield, Warwick and Yardley. No communities in Eastern Montgomery County belong to the program.

On its website, Lower Makefield states that since it joined the Community Rating System in 2016, residents living in high flood risk areas have been eligible for a 15% discount on their flood insurance.

To contact Peg Quann, email [email protected].