FEMA Releases New Flood Insurace Pricing
Recently, the Federal Emergency Management Agency (FEMA) released it pricing strategy for their “Risk Rating 2.0” pricing strategy. The new pricing will impact 5 million flood insurance policyholders and FEMA claims that two-thirds of older homes would see a decrease in premiums while most homeowners and businesses would only see a small increase.
According to David Maurstad, a senior executive in FEMA’s National Flood Insurance Program (NFIP), despite the change in rates, the NFIP is on track to lose half a billion dollars in 2022 and even more the following year. The NFIP is currently $20 billion in debt.
Rate hikes lower than expected
While property owners and politicians have been worrying about massive rate hikes, the hikes are not as bad as feared. Coastal and riverfront homeowners expected to see huge increases in an effort to pull FEMA out of debt but that did not happen. The new rates will phase in at renewal dates with all policyholders paying the new rates by April 2022.
According to Maurstad, 23 percent of policyholders will see a decrease while 66 percent will see an “average of zero to $10 a month” premium increase. The remaining 11 percent will see an increase of more than $20 a month. The average premium increase came to roughly $8 a month.
Many politicians expressed concern that low-income homeowners in coastal communities would be forced to sell their homes due to sky-high insurance premium. While FEMA did not address that concern, Maurstad said that FEMA will work with Congress and the White House to deal with income issues.
Will the NFIP ever be out of debt?
Maurstad claims that the new Risk Rating 2.0 will put the NFIP on the path to be more financially sound despite the fact that it will take several years. The new Risk rating plan departs from the current method that NFIP uses to price policies, using technology that was developed by private flood insurance companies.
Properties will be rates on their distance to a coast or nearby stream or river as well as the type of possible flooding. Other factors being considered include ground elevation, height of a home’s first floor, and the type of construction.