Flood insurance hikes may drive many from the market

Key West Citizen, The (FL)

Do you have flood insurance? The owners of some homes and businesses are required by mortgage lenders to have flood insurance; some owners who don't have mortgages just feel more secure having the coverage. Those with flood insurance may see changes in their premiums as they renew during 2022 and beyond. For some the fee definitely will rise, but for others it could stay the same or drop.

The changes come from implementation of what the Federal Emergency Management Agency (FEMA) calls "Risk Rating 2.0." This new program is intended to create a more equitable way to assess policyholders according to the risk posed by the insured property. As FEMA notes, the old rating methodology had not changed in 50 years, and took into consideration only static measurements of elevation and flood zone. The new Risk Rating 2.0 program incorporates more variables, including flood frequency, multiple flood types (river, surge, coastal, other), distance to the water source, and property characteristics such as elevation and cost to rebuild.

We are not in favor of raising rates, especially these days, but we applaud a more equitable assessment of premiums. FEMA notes that under the old program, "policyholders with lower-valued homes are paying more than their fair share of the risk, while policyholders with higher-valued homes are paying less than their share of the risk." With the Risk Rating 2.0 program considering cost to rebuild, FEMA can "equitably distribute premiums across all policyholders based on home value and a property's unique flood risk."

That means that nearby homes may have very different flood insurance premiums, depending on where the structure is built, the building's characteristics, and the replacement cost and coverage. Owners in a position to take mitigation steps should see efforts rewarded with a lesser premium.

During the past 50 years, FEMA said it has collected $60 billion in premiums, but has paid $96 billion in costs. This is untenable. We should understand the true cost of this program's services, and fund it appropriately. Flooding is the most common and most expensive natural disaster in the nation. FEMA said it expects Risk Rating 2.0 to "help put the NFIP (national flood insurance program) on solid financial footing by creating a more stable program that is accountable to taxpayers."

Alarmed by looming premium increases, some have suggested that an "affordability program" of some sort be instituted. FEMA notes that "existing statutory limits on rate increases require that most rates not increase more than 18 percent per year." And in 2018, FEMA submitted an "affordability framework" for the NFIP, but Congress has not acted on it.

Flood damage affects people, structures, belongings, infrastructure and more. We've been seeing images of terrible flood damage from all over the nation on the news. If you have flood insurance, talk to your agent about what you can expect. Under Risk Rating 2.0, FEMA estimates, nearly 20 percent of Florida flood policyholders, about 342,000, will see a decrease in their premiums. That's good. Slightly more than 68 percent, about 1.2 million, will see an increase of up to $10 monthly. The remainder should expect greater increases.