As Risk Rating 2.0 is implemented around the county, many homeowners will see their flood insurance premiums rise. How much they could be headed up is anyone’s guess but new data and research from the First Street Foundation nonprofit, which has developed its own flood risk models indicates that some homeowners in Louisiana could see major increases.
Risk Rating 2.0 is designed to make flood insurance premiums fairer, forcing people that live in high-risk areas to eventually pay a premium that accurately reflects the risk their property presents. While FEMA has said that roughly 20 percent of Louisiana policyholders will see a one-time decrease in their premium this means that 80 percent of policyholders may see an increase in their flood insurance premium.
Local officials in Louisiana, which has the largest participation rate in the National Flood Insurance Program, have concerns that the rate changes may have a very negative impact on the local homeowners. Working class families may struggle to pay the new premiums as rates continue to rise year after year.
How large will the rate increases be?
Risk Rating 2.0 pricing started back in October 2021 for new policies and April 2022 saw existing policyholders being charged the new rates when they renew their coverage. The rate increase for current policyholders is limited by law to 18 percent a year but many homeowners could see their premiums increase by 18 percent every year until the premium finally matches the risk presented by the home. The renewal notice being sent to policyholders does state the “full risk premium” which is the eventual target rate for the premium, so homeowners are aware of what is coming.
Officials looking for clues as to how dramatic the increases could be have looked at New York-based First Street Foundation’s “The Cost of Climate” analysis which was released last year. The report contained a comprehensive analysis that looked at current flood insurance rates and compares them to what it calculates as average expected annual losses due to flooding.
The report shows that in 10 municipalities in Louisiana the difference between the estimated average flood insurance premiums and average expected annual loss are pretty dramatic. These areas are where homeowners could see the largest premium increase.
Here are a few of the areas that could see major increases in flood insurance costs:
- Lacombe: According to the report, the average estimated premiums for 2021 was $853, but average expected loss was a shocking $8,538. This is a 901% difference so homeowners in this area can expect major increases in their flood insurance costs as premiums are brought up to reflect the actual flooding risk these homes present.
- Covington: This area finished second with an 891% difference. The foundation found that the average estimated premiums was $781 compared to $7,745 for average expected loss.
- LaPlace, Houma, Luling, Reserve, New Orleans, Eden Isles, Belle Chasse and Meraux: These areas will also see a significant rate increase. As an example, in New Orleans, the average premium was listed as $577, unfortunately the expected losses came in at $3,219 which is a whopping difference of 458%.
While Risk Rating 2.0 premium increases may not jump up as high as the report suggests, homeowners in these areas should prepare for major rate increases.
FEMA may need to share more information
Risk Rating 2.0 is the biggest overhaul of the NFIP in decades and most experts agree that it is long overdue. Risk Rating 2.0 will use an algorithm that uses a variety of databases and data points to calculate new rates. FEMA will now consider factors such as distance from water, construction type, elevation and rebuilding cost to set a more accurate premium.
While many homeowners and legislators have complained about the rising rates, the deep debt that the NFIP finds itself in due to collecting less than accurate premiums for decades, makes it necessary to raise rates.
Recently, industry experts have called for FEMA to better explain how mitigation strategies may result in discounts and lower premiums. Some are also calling for FEMA to offer aid to homeowners who cannot afford to make the flood mitigation changes to their homes. Unfortunately, this would have to be approved by Congress and there seems to be little movement on that for now.
For special rates and great flood insurance services, please call us to review the best coverage and price options for you, call a flood insurance agent today at 888-620-1954. We look forward to helping you!