Amid worsening climate-fueled floods, the Federal Emergency Management Agency (FEMA) is overhauling its insurance rules to better reflect the real risks facing homeowners. An overhaul makes sense – and is long overdue – given climate-shifted weather patterns. Lawmakers call the new scheme an “actuarial death spiral” that won't fix long-standing inequities in the National Flood Insurance Program (NFIP). [According to Reuters.com]
The updated system, applied to new policies from this month, is intended to weigh flood-related factors well beyond a home’s elevation – currently the key metric for determining risk. The new system also applies to policies that renew on or after April 1, 2022. The new system factors in the type and frequency of floods, a property's proximity to water and the cost of any rebuild.
FEMA estimates two in three existing policy holders will see an average premium increase of up to $10 a month and about a quarter will see immediate decreases. Premium changes would continue until the new “risk rate” is fully realized. FEMA estimates that about 50% of policies will hit that mark after five years and about 90% will reach it at 10 years.
U.S. residents in high-risk areas with federally-backed mortgages are required to carry flood insurance. The NFIP covers about 5 million policy holders, collectively totaling about $1.3 trillion in coverage. The new system is a step forward – though it fails to force people living outside designated flood threat zones, but who could still be at heightened risk, to buy insurance, said Nalan Senol Cabi, an expert in the field.
Adding more people outside of official flood zones could theoretically help shore up the NFIP's finances with homeowners who pay into the system but who might not face claims or payouts in the immediate future. FEMA anticipates that the new rules will spur more property owners to buy policies since they'll have a better understanding of their individual risk.
FEMA is making the changes as officials struggle to keep pace with rising costs associated with extreme weather events. In the first nine months of the year, there were 18 U.S. “weather and climate disaster events”, said the National Oceanic and Atmospheric Administration. Each one was associated with losses exceeding $1 billion, according to NOAA.
‘DEATH SPIRAL'
Lawmakers representing coastal regions say the new system will create unintended and costly consequences. U.S. Sen. Bill Cassidy of Louisiana said a resident of flood-prone Lake Charles, with a home outside the official flood zone, could see their annual insurance premium jump from about $570 now to $5,200 under the new plan over the coming 10 to 15 years.
The senator said people who can’t afford insurance and who otherwise aren't required to carry it would simply drop coverage, further up-ending a system already in the red. Federal assistance can be available for damage not covered by insurance – but people in high-risk zones who are uninsured and receive assistance after a flood might be required to buy insurance to receive aid in the future, according to FEMA.
“FEMA is not being upfront about these costs in the (long run), and that is what’s going to set up our actuarial death spiral,” Cassidy told reporters last month. In the last 50 years, FEMA has collected about $60 billion in NFIP premiums and paid out $96 billion in costs. [Sourced from Reuters.com]
If you are questioning if you should get flood insurance or not, it is important to note that people are four times more likely to be affected by flood waters than they are to have their house catch on fire. So if you are debating to or not to spend $500 or so dollars on flood insurance, I personally think the answer is yes!
If you are looking for an insurance expert to help you write all your insurance policies, I recommend reaching out to Alice Green at Goosehead, here locally in Texas. She is my go to, and holds 95% of my policies including, dwelling insurance for my rentals, life insurance for my husband and I, car insurance for myself, my family, and my extended family, and good ol' fashioned home owners insurance on my primary residence.
Alice Green, Goosehead Insurance
832.423.0202 | MOBILE
281.602.3950 | DIRECT
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