Climate change and its devastating impact are accelerating faster than ever, according to a new report from the United Nations’ Intergovernmental Panel on Climate Change. Hurricanes are becoming stronger, rainfall heavier and flood risk higher. Yet, America’s National Flood Insurance Program hasn’t changed at all since its inception.
But it is about to.
Under the current program, the Federal Emergency Management Agency provides $1.3 trillion in coverage for more than 5 million policy holders in 23,500 communities nationwide. Homeowners in FEMA-designated flood zones are required to purchase flood insurance, but others do so voluntarily. Nearly one-third of NFIP policyholders are not mandated to carry it.
Starting on Oct. 1, the program will undergo a complete overhaul to make insurance pricing more accurately reflect each property’s unique flood risk. Finally, climate change will be factored in.
“No question that this is the most substantive change to the program going back to 1968,” said David Maurstad, deputy associate administrator for federal insurance and mitigation and senior executive of the flood insurance program.
“What we found out was that many folks with lower-value homes were paying more than they should, and those that had higher-value homes were paying less than they should. And we have a responsibility to make sure that we have actuarily sound, fair, and equitable rates. And so that’s what’s driving the change.”
Today, federal flood insurance is based on the property’s elevation and whether it has a 1% annual chance of flooding.
Under the new model, FEMA will also look at the home’s replacement cost; whether the risk is rainfall, river or coastal flooding; and how close the property is to the source of the potential flooding. Most important, FEMA will now factor in future catastrophic modeling from climate change, including sea level rise, drought and wildfires.
Right now, the owner of a $1 million Florida home and the owner of a $200,000 Montana home are paying the same rates for insurance, even though their risk levels are decidedly different. Under the new model, the Florida owner would almost certainly pay more.
Maurstad says rates will go up for some and down for others. The majority of homeowners, however, will see rates go up about 10%, which is the normal annual increase.
“It’s just important that we address that inequity that the lower-value homes shouldn’t be subsidizing the higher-value homes going forward,” he said.
This shift will inevitably change the value of some homes. The costs incurred by any home are factored into its value, whether those costs are insurance, taxes, maintenance on an older home, or the home’s location.
“You can think of it as revenue coming in and expenses going out,” said Matthew Eby, founder and executive director of First Street Foundation, which calculates flood risk scores for every home in America. Those scores are currently posted on some of the nation’s largest home listing sites, including…
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