Homeowners brace for higher flood insurance rates as FEMA launches changes to national program

The changes to the National Flood Insurance Program mean than three-fourths of existing policyholders will see higher flood insurance bills, as climate change increases the threat of flooding from storm surge, extreme rainfall and river flooding across the country.

One homeowner on the New Jersey shore told CNN she thinks the new changes could be disastrous for homeowners.

“It’s literally one step forward and five steps back,” said Amanda Devecka-Rinear, executive director of grassroots group New Jersey Organizing Project, a coalition of homeowners impacted by Superstorm Sandy in 2012.

“The one step forward is the slightly more accurate mapping and letting more people know they’re in a flood zone,” Devecka-Rinear said. But she’s also concerned that many people will be priced out, which could shift the financial burden on to the remaining rate payers. “You’re bringing them into a program that’s not fair.”

The insurance revamp — Risk Rating 2.0 — comes after a series of devastating flood events this summer, which killed dozens of people and caused billions of dollars in damages from Louisiana to Tennessee and New York City.
Flooding in Helmetta, New Jersey, after Tropical Storm Henri in August.

But it has also been criticized by politicians on both sides of the aisle, especially those from states that have been hit hard by flooding and could see steep rate increases.

Senators Marco Rubio of Florida, Bill Cassidy of Louisiana and Bob Menendez of New Jersey released a statement last week that called on the Biden administration to delay the rollout.

“First of all, it’s not been explained, and secondly, it’s going to create rate shock, so we believe that it should be alternately suspended for now,” Menendez told CNN. “We don’t know the methodology they employ; we don’t know the conclusions they came up to.”

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Sen. John Kennedy, a Republican from Louisiana, was more blunt.

“[FEMA] ought to hide its head in a bag,” Kennedy told CNN. “Nobody knows how they’ve arrived at their new pricing, not even the insurance companies through which FEMA administers the program understand how FEMA has come up with what they came up.”

The agency said the changes are necessary to correct inequities entrenched in the program, which covers about 5 million policyholders.

“Policyholders with lower-value homes that have been paying more than they should will no longer bear the cost for the policyholders with higher-value homes who have been paying less than they should,” said David Maurstad, a FEMA deputy associate administrator and the senior executive of the NFIP, in a press call with reporters last week.

The NFIP has long been riddled with debt. In 2017, Congress canceled $16 billion of the NFIP’s debt to allow it to pay new claims in the aftermath of Hurricanes Harvey, Irma and Maria. The agency says the new risk rating scheme will help it improve its financial solvency as flooding worsens amid the climate crisis.

Flooded homes in LaPlace, Louisiana, in the aftermath of Hurricane Ida.

Around 77% of existing policy holders will see their monthly flood insurance rates increase under the new pricing structure, according to FEMA. The new rates will be based on several new factors, including home value and risk of flooding, rather than just elevation, according to FEMA.

The vast majority of rate increases for existing policy holders will be between $0-$10 per month. A smaller subset — roughly 11% of all existing policy holders — will see their monthly rates increase by $10 or more. Roughly 23% percent of existing policy holders will see their monthly rates fall when the changes take effect.

While annual rate increases have been capped by law at 18%, some properties could see rates continue to climb substantially in the years to come, as climate change accelerates. People who live in already flood-prone areas could see a drastic rise in their rates.

Menendez’s office estimates around 316 policyholders in New Jersey will see an annual increase of at least $1,200 under Risk Rating 2.0 in the first year. It estimates four of those are in Paterson, a city a median household income of $41,000 year. Paterson is surrounded by the Passaic River and experienced severe flooding from Hurricane Ida this summer.

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Devecka-Rinear told CNN she still doesn’t know how much her flood insurance rates will increase. Her rates went from $3,000 per year to $500 per year because she was able to get a grant to lift her Cedar-Bonnet Island house, making it less flood-prone. But she worries that rising rates will force more people out of the program, spreading risk to fewer people and raising their costs.

“It could within years drive people’s flood insurance up to really unaffordable levels,” she told CNN. “What we need to do is have a flood insurance program that has as many people as possible in it, and one that works because the climate crisis is here and everybody’s going to get flooded.”

The rate increases for existing policy holders will not take effect until after April 1, the agency said. But starting Friday, new flood insurance policies purchased through the NFIP will be subject to the new pricing structure.

This may mean some new policyholders will have to pay more for flood insurance than they would have under the old system, which did not factor in the threat posed by extreme rainfall events, climate change or other property-specific data, like foundation type or first floor height. Others may pay less for insurance than they would have under the old pricing structure.

For the NFIP, which provides more than 90% of all flood insurance policies in the US, Risk Rating 2.0 represents the biggest shift in how the program prices flood insurance since it was created more than 50 years ago.