Flood insurance price hikes begin Oct. 1 with new FEMA risk rating system

TAMPA, Fla. (WFLA) - Halloween isn't the only scary thing coming up in October for Florida residents. More immediately, the state is going to see rate hikes on flood insurance as the Federal Emergency Management Agency implements a new risk rating system on Oct. 1.

Flood insurance is a yearly cost to homeowners who use it, and it covers homes in danger of water damage, particularly during storms. For Florida, that's all year but particularly in hurricane season.

Starting on Oct. 1, FEMA is implementing a program update it calls Risk Rating 2.0, which will change the way that flood insurance rates are calculated and charged and could lead to price increases for thousands of homeowners with waterfront properties. The changes coming through the system update are part of FEMA's 2018-2022 Strategic Plan.

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To put that in perspective, Florida has 8,436 miles of coastline, according to the National Oceanic and Atmospheric Administration. It has the second highest number of shoreline miles in the United States, just behind Alaska, when measuring distance.

Still, FEMA said "States, tribes, territories, local communities, and individuals can all take mitigation actions to reduce their flood risk and potentially reduce their flood insurance premiums."

Rate hikes from Risk Rating 2.0

Described as "equity in action," Risk Rating 2.0 is expected to make it so individuals no longer have to pay more than what FEMA calls "their share" in flood insurance premiums. According to FEMA, about two-thirds of current policyholders with pre-Flood Insurance Rate Map homes will see their premiums go down when the first phase of the policy changes.

Each state has an NFIP risk rating profile and policy analysis on FEMA's website.

In Florida, FEMA says 1,727,900 policies are currently in effect.

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There are 5.9 million properties in Florida that aren't covered. For the past 10 years, the average NFIP claim payout is reported as $28,100. The average individual assistance claim payout in the same time period is reported as $51,00 according to FEMA.

When the changes hit in October, FEMA says 342,142 policies will see an immediate decrease, while 1,178,074 policies will increase up to $120 per year. A much smaller group of 134,572 policyholders will see a $120 to $240 yearly price hike, while just 73,113 policies in the state will see a $240 per year or higher increase.

Broken down by cost change, FEMA showed how each group fills out the state's policyholders.

While costs will change on Oct. 1, FEMA still has Hazard Mitigation Assistance Grants available for both pre- and post-disaster mitigation projects.

"Hazard Mitigation Assistance (HMA) grants are available for pre-disaster and post-disaster mitigation projects. As of October 1, 2021 for new policyholders and April 1, 2022 for existing policyholders, projects involving installing flood openings per 44 CFR 60.3 criteria, elevating structures, and elevating machinery and equipment above the first floor (i.e. hot water heaters) may reduce rates both inside and outside SFHAs," the agency said in a policy document.

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Zooming in closer, a second state profile of Florida's NFIP policies shows that for 22,865 policyholders, costs will actually go down by about $1,200 or more in the first year of the new program.

Just 1,160 policyholders will have increases of $1,200 or more per year. Focused on single-family homes, 12,992 will see the $100 per month decreases in the first year. In the same category, 393 single-family homes will have their costs increase by $100 a month, at the "extreme end" of the policy changes according to FEMA.

For all buildings in Florida that are currently covered through Florida NFIP policies, FEMA said 342,109 policyholders will see decreases for commercial, condos, multi-family and single-family structures. Just 73,107 policyholders will see increases of more than $20 per month.

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According to the same report, 114,617 single-family home policy costs will decrease, while 48,851 will see increases over $20 per month. FEMA also notes that once a policy premium is received, policyholders change parameters of their exact coverage to impact their properties' unique rates.

"Premiums are ultimately driven by variables that an individual policyholder controls. Upon receipt of a premium, a policyholder can change the parameters (such as the level of coverage limits, deductibles, and other additional data or take a mitigation action) that impact their properties unique rate," FEMA said in a Florida rate profile. "This is the same process that exists today under the current methodology."

Announcing the change

In April, FEMA announced they would be updating the National Flood Insurance Program's pricing methods so that flood risk was clearer for policyholders. The announcement said that the change would affect the more than five million policyholders across the country, who are covered by $1.3 trillion in coverage through the program.

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The new rate program was developed alongside the U.S. Geological Survey, the U.S. Army Corps of Engineers and NOAA, as well as insurance industry experts and actuarial scientists to make sure the new policy fit federal regulations and policies.

FEMA says the new methodology will let the agency "equitably distribute premiums across all policyholders based on the value of their home and the unique flood risk of their property." Right now, FEMA says a lot of the policyholders with lower-value homes are paying more than they should, and higher-value homeowners are paying less.

The new program for Risk Rating 2.0 will be implemented in two stages, starting on Oct. 1, 2021, with Phase I. In this phase, new policies will be subject to the new rating system and existing policyholders eligible for renewal will have the "advantage of immediate decreases in their premiums."

Phase II will take effect on April 1, 2022 when any remaining policies that need to be renewed on or after the date will be subject to the new rating method.

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For more detailed information on the projected premium changes, FEMA has made several ArcGIS dashboards available to explore state and county-level price changes.

* Projected Premium Changes by State

* Projected Premium Changes by ZIP Code – NFIP Policies

* Projected Premium Changes by ZIP Code – SFH Policies (Single-Family Homes)

What stays the same

Despite the new set of changes and price increases, FEMA has a few different NFIP policies that are staying the same.

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Annual premium increases will still be limited to not increase more than 18% per year. These rate increases are set through existing statutory limits.

Flood Insurance Rate Maps will still be needed for mandatory insurance purchases and floodplain management, even with Risk Rating 2.0. FEMA said the flood map data informs the catastrophe models used to develop the rates, making critical flood mapping data necessary and essential for communities with flood risks.

FEMA will still offer premium discounts for pre-FIRM subsidized and newly mapped homes and properties, and policyholders will still be able to transfer discounts to new owners when flood insurance policies are assigned during changes in ownership.

Discounts for policyholders in communities using the Community Rating System will also still be in effect, and allow communities to earn rate discounts from NFIP between 5% and 45% based on classification. Still, the discount will be applied uniformly through the Risk Rating 2.0 system, whether or not the structure is inside or outside of a Special Flood Hazard Area.

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There are currently more than 1,500 communities participating in the program nationally, according to FEMA. For those who need to check their flood risk, FEMA has flood maps online here.

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