Florida Homeowners Will Be Paying More for Flood Insurance

22 Mar

There is a good chance that Florida homeowners will be paying more for flood insurance in the near future according to a new analysis done by First Street Foundation, a nonprofit research group that is focused on how climate change impacts on property value. Their analysis found that most Florida residents face a higher flood risk than their flood insurance premium would indicate.

The National Flood Insurance Program seems to agree with their assessment as they are set to roll out new flood insurance pricing later this year. Most experts say the new pricing will lead to significantly higher rates for homeowners in flood prone areas.

As an example of the potential increases, in Miami, the average flood insurance premium is around $1,069 a year, according to First Street’s calculations. However, the proper price for the risk presented by these properties is roughly $1,500.

The news gets even worse for the homeowners in Miami Beach. First Street’s analysis found that the flood risk in this city is shockingly underpriced. First Street claims premiums would have to increase tenfold from the current average rate to properly reflect the risk. This puts the average annual premium around $20,000. 

Homeowners in South Miami are a bit luckier, they are currently paying 16 percent too much for flood insurance according to the First Street report. 

While First Street is the first company to estimate how much higher premiums should be, FEMA has stressed in press releases that their numbers may not match the premiums recommended by First Street. 

The First Street report found roughly 4.2 million properties across the country are facing major flood risk and that premiums on those properties should increase 4.5 times to accurately reflect the risk presented by the property. Roughly a quarter of these properties are located in Florida. 

All of this backs up what insurance experts have been saying for decades, The NFIP is undercharging for flood insurance, making it easier for people to build in flood prone areas. According to First Street, in order to make their policies profitable or even break even, the NFIP would need to increase rates dramatically, in fact the cost of flood insurance could double or more in many locations across the country and particularly in South Florida.

New federal caps prevent the NFIP from approving massive rate hikes all at once, but industry experts predict that homeowners may end up dealing with years of consecutive increases which will eventually bring the premium in line with the actual risk the property presents. Experts predict that it will also impact home prices. 

“So, you can imagine your insurance rate goes from $1,500 to $5,000, and you know in 30 years it’s going to go to $10,000 in today’s dollars,” said Matthew Eby, founder and executive director of the First Street Foundation in a recent Claims Journal article. “When you have dramatic increases like that you have a drop in value because the cost of ownership goes up.”

Floridians Facing a 379% Increase

First Street has put out a tool called the Flood Factor tool which allows users to see an estimate of the flood insurance cost for their specific address. 

In Florida, the average property owner in a flood zone should be paying roughly 379 percent more a year for flood insurance.

While these numbers have panicked Florida homeowners, the NFIP is warning that the First Street numbers are not a perfect match to the upcoming rate increases approved by the NFIP. ‘

“Any entity claiming that they can provide insight or comparison to the Risk Rating 2.0 initiative, including premium amounts, is misinformed and setting public expectations that are not based in fact, said David Maurstad, senior executive of the National Flood Insurance Program in a recent statement. “While entities are free to suggest or estimate their opinion of what flood insurance premiums should be, they are offering exactly that _ an opinion _ and they do not have insight into the Risk Rating 2.0 initiative.”

Florida is no stranger to flood insurance. According to the Insurance Information Institute, Floridians are big customers of the NFIP with one third of all of their policies being located in the Sunshine State. Miami-Dade accounts for a fifth of all NFIP policies in Florida. 

Change is Coming

On October 1st, 2021 every NFIP policy in the country will be switched over to the new method of calculating risk which will result in new flood insurance premiums. 

However, there are federal caps in place on rate increases so premiums may not reflect the actual risk of the property. For primary homes, the rate increase is capped at 18% plus fees while other properties could see increases of 25% plus fees.

Risk Rating 2.0 (NFIP’s new rating system) will consider rainfall and tidal flooding which can be driven by a rise in the sea level, but premium increases won’t be impacted by where the home is located on a map.

This means that the NFIP may charge different rates for homes that are located in the same flood zone, depending on the specific risk each individual home presents. As an example, a waterfront home may end up paying a significantly higher premium than a home in the same flood zone that is 6 blocks inland. 

“In the current system, there’s only black and white. It seems very clean, but of course, the floodwaters don’t care if you’re on the one side of the street that’s out of the mapped flood zone,” she said. “It’s going to be more of a grayscale gradient, which is much more closely tied to reality, said Anna Weber, a senior policy analyst at the Natural Resources Defense Council in the Claims Journal article.”

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