It’s October, and the Federal Emergency Management Agency’s (FEMA) new program, called Risk Rating 2.0 Equity in Action, went into effect on Oct. 1. For many homeowners, this may be the annual October surprise, even though it was well-publicized by FEMA.
This overview of flood insurance premium rate increases was delayed from last year after the agency received pressure from Congress to delay the increases because of COVID-19 and other financial considerations. Remember that Florida is in the crosshairs of FEMA, which always runs a deficit, since approximately 35% of their policies are in the state of Florida.
FEMA is responsible for the National Flood Insurance Program, which is sold through individual insurance brokers. Generally, properties with mortgages – especially federally backed mortgages – are required to carry flood insurance based on the home’s flood zone.
FEMA’s new pricing methodology is intended to create a more equitable way to share the risk. Since the 1970s, a home’s flood insurance cost was based on its elevation and zone within a FEMA Flood Insurance Rate Map. FEMA says a one-size-fits-all rate policy means that policyholders with higher-valued homes are paying less than their share of the risk. Conversely, policyholders with lower-valued homes are paying more than their share of the risk. FEMA says that Risk Rating 2.0 will work similar to existing property insurance policies in which every homeowner receives an individualized price quote. In addition to elevation and flood zone, FEMA says a 2.0 coverage quote will also consider flood frequency, multiple flood types and distance to a water source along with other property characteristics such as the cost to rebuild.
Although when first announced FEMA did not provide specifics relative to rates, they have given an overview of the changes to Florida residents. One out of five Florida homeowners (19.8%) should see a decrease in their yearly insurance cost. One out of 25 (4.2%), however, should see a yearly rate increase greater than $240. Also, FEMA says homebuyers don’t have to suffer sticker shock after closing since the new system will be more transparent. And the National Flood Insurance Program premium can still be transferred, including discounts from a seller to a buyer when the home sells.
Southwest Florida has some of the highest numbers of homes in the 100-year flood zones in the state. Monroe County leads the state with 89.1%, Sarasota has 26.3% and Manatee has 15.7%. Sarasota and Manatee numbers don’t, however, segregate the barrier islands. In addition, Pinellas, Miami-Dade, Charlotte, Lee, Brevard and Sarasota counties also appear in the top 10 nationally for the total value of real estate at risk.
What FEMA is trying to do is put more responsibility on those choosing to live in flood zones and then continuing to do so as the ramifications from global warming intensify. Their goal is to compensate for five decades of mispriced insurance. The way FEMA calculates flood insurance premiums is historic in its concept, going back to 1968.
There are also new FEMA flood maps that took effect in August. This could potentially change flood insurance premiums further in addition to the FEMA 2.0 changes. The bottom line is there are a lot of flood insurance changes going on, and it’s important that homeowners who live in a flood zone be aware of how it will affect your insurance premium at renewal time. At least we’re almost done with hurricane season.
