If you have flood insurance, the price is likely going up. What that means in NC [The Charlotte Observer]

Starting this month , anyone buying a flood insurance policy will see a shift in prices due to a set of changes the Federal Emergency Management Agency has called Risk Rating 2.0.

“The way that the rates are actually set is long overdue for an overhaul and has not been updated in decades, so Risk Rating 2.0 really brings the whole insurance system into the 21st century with updates that are based on more granular data about an individual property,” Laura Lightbody, director of The Pew Charitable Trust’s flood-prepared communities initiative, told The News & Observer.

FEMA has touted Risk Rating 2.0 as marking a significant shift in how flood insurance premiums are set by accounting for a number of property-specific factors instead of setting prices solely based on the zone where a property sits. The federal agency oversees the National Flood Insurance Program, pricing flood insurance and also deciding which property owners need to purchase it in order to secure a federally backed mortgage.

“Policyholders with lower-value homes that have been paying more than they should will no longer bear the cost for the policyholders with higher-value homes who have been paying less than they should. Risk Rating 2.0 fixes this injustice,” David Maurstad, the National Flood Insurance Program’s senior executive, said on a recent press call.

The NFIP has historically been deeply in debt due to massive losses from storms like Hurricane Katrina and Hurricane Harvey. And losses are likely to mount as climate change continues to exacerbate natural hazards like hurricanes and heavy rainfall.

Flood insurance is typically not covered by homeowners’ policies.

New policies purchased after Oct. 1 are subject to the changes. Any existing policies renewing on or after April 1, 2022, will be impacted by the changes.

How is FEMA changing its formula?

Flood insurance rates have historically been based on whether a property sat in a specific zone. Rates were largely based on how flood-prone FEMA deemed that zone.

Now, FEMA will consider such factors as the frequency of floods, how far a property is from water and how flooding is caused. The program will also consider information like whether a property is elevated and how much it would cost to rebuild.

“Your policy is now going to be property specific. It’s going to be tailored exactly to the location and the characteristics of your house, and so the prices are going to change to reflect that additional information,” said Miyuki Hino, a UNC-Chapel Hill professor of land use and environmental planning.

Steve Garrett, North Carolina’s National Flood Insurance Program coordinator, said that historically a property on the edge of a flood map would be paying the same rate as one that was much closer to a water source but in the same flood zone. Under Risk Rating 2.0, Garrett said, the pricing will be more “actuarial.”

“It gives a more comprehensive picture of the flood risk of a structure but also individualizes that to that specific location,” Garrett said. Because the new formula considers replacement cost, he added, it better accounts for the actual risk posed by a specific property.

How will this impact what I’m paying for flood insurance?

The answer comes down to your specific property.

There are 139,842 active flood insurance policies across North Carolina, according to data provided by FEMA. In the first year of Risk Rating 2.0, impact to premiums would include:

In North Carolina, there are 50 properties including two single-family homes that would see rate increases of at least $100 a month. Those properties are generally located in coastal areas like Brunswick and New Hanover counties, but there are five in Wake County and three in Haywood County.

Congress has capped flood insurance rate increases at 18% per year, so it could take several years for Risk Rating 2.0’s change to become fully effective in the most flood-prone areas.

While the caps could be helpful right now, Hino said, gradual increases could lead to problems for some property owners.

“You might be living in a house where your insurance is affordable right now and it might be for another couple of years, but it’s quickly going to get more expensive than you can tolerate,” Hino said, adding that homeowners need to know what their final cost of insurance will be once the full increases have taken effect.

During the FEMA press call, Maurstad said premiums nationwide have been rising by about 10% annually for “a number of years.” In addition to offering the NFIP’s first-ever decreases, he said, premiums will stop increasing once the true risk level has been reached — a process he acknowledged could take five or 10 years in some cases.

Flood insurance premiums for single-family homes will be capped at $12,125 annually, he added.

What does this mean in the Triangle?

Like most of North Carolina, the majority of flood insurance policies in Durham, Orange and Wake counties are going to increase slightly in the first year of Risk Rating 2.0. In all three counties, the largest groups of policy holders will see increases of up to $120, according to FEMA.

Wake County has 4,104 flood insurance policies, the most in the Triangle, according to FEMA data. Risk Rating 2.0’s impacts in the first year will include:

Durham County has 1,499 active flood insurance policies, according to FEMA. In the first year, Risk Rating 2.0’s impacts will include:

In Orange County, there are 960 active flood insurance policies. Anticipated impacts in the first year of Risk Rating 2.0 there will include:

Is Risk Rating 2.0 more equitable?

According to FEMA, policyholders in less expensive homes have historically paid an out-sized portion of flood insurance policies. By considering the cost of rebuilding a home, FEMA hopes not only to better price risk but also shift the burden of premiums to the people who are more likely to submit high claims.

“It’s aimed at fixing a longstanding imbalance in the program where because it was based on this antiquated system, many lower-value, lower-risk homes were paying too much and many higher-risk, higher-value homes were paying not enough,” Lightbody said.

Risk Rating 2.0 also does away with a discount for insurance that FEMA offered after the first $60,000 of coverage was purchased. Hino, of UNC, said that discount historically meant that people with more expensive homes were paying lower rates for more coverage.

“That’s no longer the case,” Hino said, “and so it’s less likely to be the case that the owner of a comparatively lower-value property would be paying more to insure than the owner of a higher-value property.”

Will this change who needs to buy flood insurance?

No. Under Risk Rating 2.0, owners of any buildings that stand within a FEMA-mapped special flood hazard area will still need to purchase flood insurance in order to secure a federally backed mortgage. Special hazard areas are defined as places that have at least a 1% chance of flooding in a given year.

“The in-or-out determination will still be important for the lending institutions to determine which structures are required to have flood insurance under the current regulations, and it’s also still going to be used for floodplain management,” Garrett said.

This story was produced with financial support from 1Earth Fund, in partnership with Journalism Funding Partners, as part of an independent journalism fellowship program. The N&O maintains full editorial control of the work.

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