The government is boosting flood insurance rates this month—with a second hike coming next year—in an effort to buoy the federally funded program that's sinking in debt. Premiums on new and renewed policies will increase by 8% on average beginning this month.
These premium increases follow a year of significant losses for the National Flood Insurance Program (NFIP), which paid out more than $8 billion in claims in 2017, according to FEMA, which administers the program. Most of these claims were incurred by hurricanes Harvey and Irma, which devastated coastal states like Texas and Florida and added a projected $16 billion of losses to the program's current $24.6 billion of debt.
A disaster relief bill in October forgave $16 billion that the NFIP owed. But the president and politicians on both sides of the aisle have called for further reform in order to salvage the program. While this month's rate increases are a step in the right direction, they likely won't be enough to sustain the program over the long term.
"The federal government's recently announced rate increases will only modestly help the National Flood Insurance Program's finances," said Michael Barry, spokesman for the Insurance Information Institute, an industry-funded consumer education organization. "If you look at 2017, some of the largest payouts in NFIP history occurred after hurricanes Harvey and Irma. The 8% increase is modest given the magnitude of the flood insurance payouts just last year."
Who is affected most by the rate hike?
The NFIP's premium increases will affect policyholders of all risk classes nationwide. However, more than half of these policies are carried by homeowners in just three states: Florida, Louisiana and Texas.
The largest rate hikes will affect federally subsidized flood policies, which make up 20% of all NFIP policies, according to Barry. Those increases are designed to bring the federally subsidized policies up to levels that match their flood-loss risk. Property owners who carry one of the following four categories of Pre-Flood Insurance Rate Map (Pre-FIRM) subsidized policies will see the highest of those increases.
- Nonprimary residential properties
- Business properties
- Severe Repetitive Loss (SRL) properties
- Substantially damaged or improved properties
Pre-FIRM policies were written for properties constructed before the initial flood insurance rate maps were created. Property owners who carry Pre-FIRM policies have enjoyed subsidized rates lower than what is necessary to cover their properties' potential flood losses.
Now policies that cover these four property types will receive an annual rate increase of up to 25% until their premiums reach full-risk rates. All other Pre-FIRM subsidized policies will receive an annual average rate increase of at least 5%.
Pre-FIRM policyholders aren't the only property owners who will have to pay more for their flood insurance, though. The NFIP needs to bolster the program nationally to sustainably protect all property owners at risk of inland flooding. That means all other risk classes could see a rate increase of up to 18% per policy.
The NFIP estimates that the average premium will increase from $866 to $935. Adding surcharges and fees, the average property owner can expect to pay $1,062 for their flood insurance policy this year.
Premium increases in 2018
|Policy/Zone Category||Maximum individual rate increase*|
|Pre-FIRM subsidized policies|
|Condo and multifamily policies||5%|
|All other Pre-FIRM policies||25%|
|Post-FIRM V zones||11%|
|A99 & AR zones not eligible to receive PRP premiums||2%|
|Post-FIRM A1–A30 & AE zones||1%|
|AO, AH, AOB and AHB zones||No change|
|Unnumbered A zones||3%|
|Group Flood Insurance Policies (GFIPs)||No change|
|Tentative and provisional rates||No change|
|Mortgage Portfolio Protection Program (MPPP)||No change|
Which policies are targeted by 2019 increases?
Unlike 2018's rate increases, the ones beginning in 2019 will be applied to Preferred Risk Policies (PRPs)—those written for properties in moderate risk areas—as well as policies written in regions with new or updated flood maps.
|Policy/Zone Category||Maximum individual rate increase*|
|Preferred Risk Policies (PRPs)||8%|
|A99 & AR zone policies eligible for PRP premiums||8%|
|Properties newly mapped into the SFHA||15%|
PRPs—as well as A99 and AR Zone policies that qualify for PRP premiums—will receive a base-rate increase of 8% before other fees are applied. Policies in regions with new or recently updated flood maps will receive PRP rates for the first year after the effective date of the updated map. However, following that year, each newly mapped policy will receive an annual rate increase of 15% until they reach flood-risk rates.
How should property owners respond?
Homeowners in regions with a moderate to severe flood risk should continue purchasing coverage. There are two potential ways they could lessen the blow from rate hikes. You may qualify for a discount if you bundle your flood and home insurance policies under the same homeowners insurance company. Alternatively, private flood insurance companies, such as TypTap or Florida Peninsula, may also offer lower rates than you would get from the federal program.
Nobody likes paying more for insurance—especially if you've never even filed a claim. But the devastation last year's hurricanes wrought on coastal America highlights the importance of flood insurance. Even an inch of water can incur thousands of dollars in damage for a home. A hurricane's destruction could be far more than most homeowners can afford to repair.
Property owners in coastal states are not the only ones at risk of flooding, either. Almost 25% of flood insurance claims come from low- to moderate-risk areas, according to FEMA, and these regions receive a third of all federal disaster assistance for flooding.
"A lot of Americans underestimate their flood risk because they're far removed from the ocean," said Barry, "but there are plenty of other ways you could be flooded, such as rivers overflowing or dams breaking." Without these rate increases, the NFIP might collapse under the impending losses, and homeowners could be left without protection.