Will Your Insurance Be Affected by Rising Flood Rates?

For many years homeowners have enjoyed living in coastal areas, partly thanks to affordable flood coverage. Unfortunately, federal flood insurance rates are skyrocketing for millions, which could force some residents to pack up and move further inland. It's crucial to know how much your coverage rates stand to increase.

Luckily, an independent insurance agent can help you review your flood insurance policy and prepare for any upcoming premium hikes. They can also help you shop around for another policy that's more affordable. But until then, here's a closer look at where flood insurance rates are rising, and by how much.

Why Are Flood Insurance Rate Increases Happening Now?

The Federal Emergency Management Agency (FEMA) is trying to cover the ever-increasing cost of flood coverage thanks to a warming climate. Flood insurance rates are now increasing because the warming climate makes rain and flood events much more frequent and severe in many areas, which ups the risk of flood damage to millions of homes. Those living close to the ocean or other bodies of water are especially at risk.

Who Will See the Biggest Flood Insurance Rate Increases?

DID YOU KNOW?

More than 3.8 million flood insurance policies will be affected by rate changes.

Homeowners in coastal areas and on islands like the Florida Keys are at the biggest risk of increased flooding events, and therefore the biggest risk of increased flood insurance premiums. FEMA estimates that more than 90% of Florida Keys residents will experience huge increases in their flood insurance. Premiums could rise as much as thousands per year. 

Fortunately there's a limit on just how much flood insurance rates can increase each year. Congress placed a cap on flood insurance rate increases at 18% annually. Still, experiencing an increase of nearly one-fifth of your annual flood insurance premium can be a shocking, and sometimes unaffordable, blow to many homeowners.

How Will Rising Flood Insurance Rates Affect Housing Markets?

In areas heavily affected by rising flood insurance rates, the housing market is likely to take a major hit. With millions of flood insurance premiums increasing, many former potential buyers will be priced out of living in high-risk areas due to the cost of coverage alone. Further, current residents in these areas are at high risk of being priced out of their homes due to these huge hikes in flood insurance costs.

What Will Increased Flood Insurance Rates Look Like for Homeowners?

FEMA's new system for assigning flood insurance rates is called Risk Rating 2.0. This system organizes flood insurance rate changes into four categories that break down how many policies will be affected in each. Check out the chart below.

An independent insurance agent can help you determine which category your current policy falls into, as well as which flood zone you reside in.

What Is FEMA's Risk Rating 2.0?

FEMA's Risk Rating 2.0 is the organization's new risk rating methodology that determines flood insurance rates by the area's evolving risk of flooding events with the changing climate. The new system is already in place. Risk Rating 2.0 comes with the benefit of correcting previous pricing errors, such as owners of low-value properties who were paying too much for coverage. 

The Risk Rating 2.0 system moves away from FEMA's older methodology of assigning an area's flood risk through the use of flood zone maps. Instead, Risk Rating 2.0 evaluates a property's flood risk by considering factors such as:

• The area's storm surges over time
• The area's elevation
• The area's flood losses over time
• The area's natural surroundings and barriers to flooding
• The probability of inland flooding in the area
• The cost to rebuild property in the area

Some homeowners will see huge spikes in their flood insurance premiums over time, though others will only experience marginal increases. An independent insurance agent can help you figure out where you stand.

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Effect of Risk Rating 2.0 by US Region

Thanks to Risk Rating 2.0, nearly one-fourth, or 23%, of all flood insurance policies nationally will actually experience a decrease in premium costs. Here's a breakdown of how various regions of the US will be affected by FEMA's new system, whether positively or negatively. 

States with the Most Flood Insurance Rate Decreases after Risk Rating 2.0

States with the Most Flood Insurance Rate Increases after Risk Rating 2.0

Only four percent of flood insurance policies across the US, or almost 193,000, will experience premium rate hikes of more than $20 per month. The states seeing the highest flood insurance rate increases, including Texas and Florida, are due to their proximity to the ocean and other geographical and climate factors.

How Can an Independent Insurance Agent Help You?

It’s simple. Independent insurance agents simplify the process by shopping and comparing insurance quotes for you. Not only that, but they’ll also cut through the jargon and clarify the fine print so you'll know exactly what you’re getting.

Independent insurance agents also have access to multiple insurance companies, ultimately finding you the best flood insurance coverage, accessibility, and competitive pricing while working for you. If you're at risk of Federal flood insurance rate hikes, they can help you find more affordable coverage from a competitive carrier.