FEMA’s new insurance system aims to make premiums fairer as climate change increases flood risks

Many property owners in the Philadelphia area didn’t have to think twice about flood risk. Then came the remnants of Hurricane Ida, the staggering flooding of the Vine Street Expressway, and extensive damage to homes and businesses that don’t normally get flooded.

As climate change worsens flooding, already the nation’s most frequent and costly natural disaster, the Federal Emergency Management Agency is making the biggest changes in its history to what it charges homeowners for their insurance against floods. The changes reflect better data and the agency’s desire to make the system fairer and easier for homeowners. Those with more valuable properties at high risk of flooding (think large homes on the coast) will now pay more, while owners of less valuable properties at low risk will pay less.

The system sounds like common sense. But while FEMA calculated rates for National Flood Insurance Program policies for the past four decades, owners of less valuable properties with lower risk overpaid and helped cover the costs of owners with more valued properties and higher risk. risk. Homeowners’ premiums depended primarily on their elevation and location on FEMA’s flood map zones.

» READ MORE: How to File a Hurricane Ida Wind and Flood Damage Claim

Now, with a more sophisticated system, homeowners will pay based on their property’s individual risk and the actual costs of replacing structures. FEMA is leveraging advances in technology, geolocation data, and lessons learned over decades. The agency will use flood maps for flood management and to determine who should buy flood insurance, but not for insurance rates.

The new system results in “a much more accurate premium and a fairer premium for everyone involved,” said Richard Sobota, FEMA senior flood insurance specialist.

The agency began changing the way it prices new flood insurance policies in October. Starting this month, the changes will begin to apply to existing policyholders when their policies renew. The cost reductions will take effect immediately, while FEMA will phase in the increases. Fare discounts did not occur with the previous system.

» READ MORE: After Ida Destroys Hundreds of Pennsylvania Homes and Causes Over $100 Million in Damage, Residents Wait for Disaster Help

Of the nearly 20,000 National Flood Insurance Program policies for residential and commercial real estate in Philadelphia and surrounding counties, premiums will increase for about 65% of policyholders, according to an analysis of FEMA data by QuoteWizard, the insurance division of the LendingTree online lending marketplace. Most increases will be less than $20 per month.

In Philadelphia, nearly 45% of single-family home policyholders should pay less for their insurance, according to an analysis of FEMA data by the Pew Charitable Trusts. Of those who will pay more, about 94% will not pay more than $10 more per month.

» READ MORE: A timeline of the destruction of Ida in Philadelphia

In addition to reconstruction costs, the federal agency will determine individual properties’ flood risks based on criteria such as elevation and other property characteristics; physical characteristics of the area; historical frequency of floods; type of flood, such as river or coastal surge; and proximity to water sources.

“This really makes for a much fairer system where people pay based on the risks they face rather than everyone covering everyone,” said Nick VinZant, senior research analyst at QuoteWizard by LendingTree. “A small house on a high hill that never floods will no longer pay for the beachfront mansion.”

Change in how FEMA sets flood insurance premiums is ‘long overdue’ and ‘catapult[s] this program into the 21st century by integrating new data” from the insurance industry and scientific models that more accurately assess individual flood risk, said Laura Lightbody, project director for Pew’s Flood Prepared Communities Initiative, whose objective is to reduce the impacts of floods. related disasters.

More houses are susceptible to flooding than people think. Homes can be flooded anywhere it rains, and the risk of flooding from rain is getting worse. Most homeowners insurance does not cover flood damage. Communities have also built more homes in flood-prone areas, increasing the costs of flood damage.

Raising the price of living in riskier areas may encourage less risky development, Lightbody said.

“The price of insurance should be a factor when communities, policymakers, are considering where and how to develop, grow or rebuild,” he said.

Nationwide, four out of five National Flood Insurance Program policyholders will pay more for coverage, according to an analysis by LendingTree’s QuoteWizard. About 1.2 million of the more than five million policyholders in the program will pay less. In New Jersey and Pennsylvania, while a large number of people will see a relatively small increase, a small number of people will see significant decreases, VinZant said.

» READ MORE: ‘I can’t get out’: These families lost their homes in Hurricane Ida. They were stuck in hotels six months later.

“I was surprised to see how many people overpaid before,” he said. “And how much were they overpaying.”

FEMA’s new rate system will ensure the indebted agency collects the rates it needs to pay for damage from the next Hurricane Katrina or Superstorm Sandy without having to borrow money from Congress, FEMA’s Sobota said. .

Nearly 52,000 policies in Pennsylvania and more than 217,000 in New Jersey are under the National Flood Insurance Program and are subject to change. These policies cover about 36,000 single-family homes in the Keystone State and 116,000 homes in the Garden State. The national program covers most flood policyholders in the region, while private insurers cover the rest.

» READ MORE: How an Upper Dublin homeowner fought Allstate for months to settle his Hurricane Ida claim

Under FEMA’s new system, property owners can also find out more quickly how much they would pay for flood insurance, receiving a quote in about 20 minutes, Sobota said. The old system involved a long and drawn out process, she said.

Policyholders of the National Flood Insurance Program will receive notice of rate changes 45 days prior to policy renewal.

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