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Is Your Flood Insurance Poised for a Premium Hike?

Mar 12, 2021 by Aly J. Yale
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FEMA is gearing up to introduce a new risk rating system for the National Flood Insurance Program this fall -- and, according to a new study from First Street Foundation, it could cause some serious premium hikes when it does. In fact, on the riskiest homes, flood insurance premiums could jump a whopping 4.5 times under the new system. By 2051, they'd need to increase 7.2 times over to account for growing flood risk.

Do you have a property that's at risk for flooding? Here's what you need to know.

Why the increase?

The reasons for potential premium hikes are twofold. First, many homes are currently underinsured -- particularly those in riskier areas. On top of this is climate change, which is increasing overall flood risk, as well as the projected damage flooding will cause over the coming years.

"There is both a current underestimation of economic risk in the U.S. and a compounding environmental effect that will need to be taken into account moving forward," the report reads.

In fact, according to the study,, total expected flood damages this year are expected to top $20 billion. By 2051? That number's estimated to be a whopping $32.2 billion.

Since FEMA's new rating system -- dubbed Risk Rating 2.0 -- aims to "more accurately reflect the risk of today's climate," this increased risk will undoubtedly drive up premiums when implemented. The agency is currently planning to adopt the new system this October.

How much will the increase be?

According to the study, properties in an official Special Flood Hazard Area (about 1.5 million homes nationwide) would see the biggest jumps. For these properties, premiums would increase to around $7,900 per year -- up from an average of just $1,884.

Properties outside SFHAs that have substantial flood risk would see increases much lower -- around $2,500 per year -- representing an increase of about $2,000. About 2.7 million homes fall into this category.

Finally, across all homes with flood risk, the average premium would be $3,343 -- up from just $902 today.

Where premiums could rise most

First Street's study shows that Delaware, South Carolina, Florida, Washington, and California are likely poised for the biggest hikes in premiums over the next few decades.

In Delaware, there’s a difference of $22,000 between the average NFIP premium and projected flood damage to high-risk homes. In South Carolina, it’s more than $14,000. If NFIP’s new rating system accounts for these higher predicted losses, property owners could expect an increase in premiums.

North Dakota, Washington, D.C., Kansas, and Nebraska have the lowest risk and projected damages from flooding and would likely see the smallest impact under the new rating system.

A silver lining

First Street's estimates are just that: estimates. There's no telling how FEMA's new rating system will actually impact flood insurance premiums, and if increases are in the cards, how those hikes will be phased in.

The important thing is that your property is fully protected in case of a flood or other natural disaster. If you're not sure or it's been awhile since you've looked at your policies on your investment properties, it might be time to check your coverage just to be safe. With natural disasters on the rise, you can't be too careful.

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