Flood insurance rates rising ‘across the board’ on the Coast. Here’s what to expect
Beginning Oct. 1, flood insurance rates will increase for most Mississippians, including Coast residents.
The National Flood Insurance Program is moving to a new rating system called Risk Rating 2.0 that will change the way rates are determined, the first major change in rate structure in 50 years, according to the Federal Emergency Management Agency.
While NFIP policyholders saw increases that averaged more than 11.3% after April 2020, according to ValuePenguin.com, Risk Rating 2.0 will bring more targeted increases designed to charge premiums that reflect actual flood risk.
The NFIP is updating its program as climate change places more properties at risk of flooding, and stronger and more frequent hurricanes swamp the agency in debt.
The NFIP’s debt currently stands at $20.5 billion. The NFIP has lost an estimated total of $36 billion since its inception in 1968, the Insurance Journal reports. Congress wrote off $16 billion of that debt. Hurricane Katrina caused the most significant losses in 2005.
The new risk rating system will take into account more of the information private insurers use to set rates for homeowner policies, said Dewana Davis, flood insurance liaison for the FEMA region that includes Mississippi. Rates are expected to increase the most on houses that face a substantial risk of flooding, whether in or out of flood zones.
Based on what he’s seen, Joel Verdon, personal lines sales manager for Lemon-Mohler Insurance Agency on the Coast, expects some policyholders will see hefty increases over time.
He expects policyholders with structures on slabs in flood zones to see the highest increases, while those with elevated homes could fare better.
“If FEMA 2.0 does mimic what the private insurance companies are doing now,” Verdon said. “I do see higher rates across the board for the Coast.”
In addition to elevation in areas at high risk of flooding, new rates will use satellite imagery to determine ground elevations and how close a structure is to a flooding source. Rates also will take into account the actual replacement cost of the structure, including age, materials, labor, number of floors and other factors that would affect those costs.
Under the current system, NFIP uses flood maps that set base flood elevations for special flood hazard areas, or those prone to flooding. Rates are currently based on the elevation of structures within those special flood hazard areas. Outside flood-prone areas, rates are lower.
”We’re now considering it as a new ‘equity in action’ program,” Davis said. “The reason we say that is because, basically, we’re trying to leverage the industry’s best practices to set rates that are sound, equitable and easier to understand.”
Will your flood insurance rate change?
While most policyholders will see rates increases under the new system, a small percentage on the Mississippi Coast will see lower rates.
Increases are capped each year, many at 18%, so that a policyholder could see increases for multiple years until the amount they pay equals the risk of flooding for their insured structures.
Statewide, more than 61,000 NFIP policies are in force. Increases of up to $120 a year are slated for 44,643 policies, or 74%. FEMA says rates will decrease on 10,047 policies, or 16%. Increases of more than $120 a year will apply to 6,628 polices, or 10%.
A spreadsheet the Sun Herald received from the Mississippi Insurance Department shows NFIP policies in force, and how many policies increase or decrease in cost. The figures below apply for Coast counties:
- Hancock County: Increases for almost 94% of policies
- Harrison County: Increases for almost 89% of policies.
- Jackson County: Increases for 94% of policies.
Increases of $1,200 or more a year are limited to a small number of policies, the data shows: 3 policies in Hancock County, 14 in Harrison County and 8 in Jackson County.
Verdon foresees a potential “mortgage crisis” for policyholders whose rates are artificially low because they were “grandfathered,” meaning their premiums were based on older flood maps that indicated a lower risk of flooding. Risk Rating 2.0 does away with grandfathered rates.
In flood zones, property owners are required to carry flood insurance, a cost that is included in their mortgages. Monthly mortgage payments could rise to unaffordable levels for previously grandfathered or subsidized structures near the water, he said.
Insurance agents are still waiting on Risk Rating 2.0 pricing to quote individual rates to policyholders, Verdon said.
“Truthfully,” he said, “they will probably wait until the 11th hour to tell us just because of the way the government operates.”
Securing a fair flood insurance rate
The new rating system goes into effect Oct. 1 for new NFIP policyholders, who will pay the full new rate. Existing policyholders, whose rate increases are capped annually, will be under the new rating system April 1, 2022, FEMA’s Davis said.
Policyholders whose rates will be lowered can opt into the new risk rating system before their policies expire to receive the lower rate earlier.
Under the new rating system, FEMA will for the first time use technology to determine a property’s elevation so that no elevation certificate is needed to secure a policy, speeding up and streamlining the process. But an elevation certificate could help keep down a policyholder’s flood rate if their property is higher than the area water source, Davis said. A policyholder can submit an elevation certificate to their agent to see if it qualifies them for a lower rate.
This story was originally published August 10, 2021 at 5:50 AM with the headline "Flood insurance rates rising ‘across the board’ on the Coast. Here’s what to expect."
