FEMA Announces Flood Insurance Rate Changes to Improve Equitability

Graphic: Annabel Driussi for Our Daily Planet

The Federal Emergency Management Agency announced late last week a new pricing structure for its federal flood insurance program.  The federal government has been subsidizing flood insurance for people in areas defined by the government as flood-prone — the new pricing takes into account the actual risk to people’s homes, which will result in increases for expensive properties in high-income areas, according to Jeremy Porter, who is the head of research and development at First Street Foundation, a Brooklyn based nonprofit organization that studies climate change and flood risk.  According to FEMA, only about 4%, or roughly 200,000 policies, will have big premium increases, while about 1.15 million will see decreases.

Why This Matters:  The prior system was inequitable and FEMA says its new system will mean that low-income people with less valuable homes will pay only their fair share.  According to First Street’s Porter, the old system was “basically a subsidy to people,” and the new system ensures that “pricing is based on your insurance risk.”  Subsidies for expensive properties mean the government created perverse incentives for wealthy people to build high-priced homes in areas that were likely to flood despite the risks.  Now FEMA needs to update its flood maps to cover the many more people in the U.S. with increased climate-related flood risks who can’t get insurance.

First Update to Flood Pricing Policy in Fifty Years

Currently, only approximately 30% of flood-prone properties are eligible and take out federal flood insurance, Porter explained to Reuters.  Still, many people are covered — the current flood insurance program at FEMA provides $1.3 trillion in coverage in the U.S.  However, the program is more than $20 billion in debt because of the improper pricing and the large number of flood events on properties that are lucky enough to have coverage.  The new prices are the first time since the program began in 1968 that prices have been updated  — and the new prices are based on both the agency’s increased understanding of flood risks and on the use of new techology to calculate risk more accurately, FEMA explained.

Risk Rating 2.0

According to The Hill, the new way of calculating risk is called “Risk Rating 2.0” and will result in 23% of policy holders getting a decrease in their premiums.  Many more (66%) will see their premiums increase, according to The Hill, but the premiums will only rise $10 per month; while 7 % will have an increase between $10 and $20 per month.  The agency’s fact sheet said the average policy holder’s increase is $8 per month, which is well worth the cost.  “We are putting equity at the forefront of our work at DHS and making reforms to help our nation confront the pressing challenges caused by climate change,” said Homeland Security Secretary Alejandro Mayorkas in a statement. The new premium costs will be phased in.

To Go Deeper: Check out the program and see if you are covered here.

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