Under the revised National Flood Insurance Program (NFIP), 3.8 million homeowners are expected to see their insurance costs increase, according to ValuePeguin.com.
A majority of policyholders — 80% or more — in Hawaii, Texas, Mississippi, West Virginia, Florida and Louisiana are expected to see premiums increases, the site reported.
Additionally, more than 10,000 households in Florida, Texas, Louisiana, New Jersey and New York are projected to experience the highest price increases ($240 or more annually).
Although the update, dubbed Risk Rating 2.0, will increase premiums for many policyholders, existing caps on annual rate growth are still in effect. As a result, most homeowners won’t see year-over-year growth exceeding 18%.
Distributing premiums more equitably
Driving these premium gains is the move away from reliance on flood zone mapping, according to the site. The update models a property’s risk by considering several factors such as the probability of inland flooding, historical storm surges and losses, costs to rebuild, elevation, and natural surroundings and barriers.
This change will reverse the trends of lower-valued homes paying “more than their share of the risk, while policyholders with higher-valued homes are paying less than their share of the risk,” according to a release by the Federal Emergency Management Administration (FEMA). Since Risk Rating 2.0 considers rebuilding costs, premiums can be more equitably distributed across all policyholders based on a home’s value and unique flood risk.
“The new methodology is not a minor improvement but a transformational leap forward,” David Maurstad, senior executive of the NFIP, told Bloomberg.
Such models will allow the program flexibility when faced with changes in weather and the built environment, the news outlet reported.
“We will be able to reflect the impacts of climate change in the years to come, unlike with the antiquated program we are saddled with at this time,” Maurstad said.
The updated NFIP is also expected to lower rates for 1.2 million homeowners, according to ValuePeguin.com. This includes at least half of all policyholders in the District of Columba, Maryland, Michigan and Utah.
Further, 8-in-10 existing flood insurance policies in Alaska will see an immediate rate decrease, according to ValuePeguin.com.