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FEMA’s new flood risk rating system could result in new insurance rate

Louisiana flooding
Posted at 6:30 PM, Oct 14, 2021

Flooding can happen to anyone.

“All 50 states have experienced significant flooding,” said Ileana Ledet, senior vice president of Policy at Greater New Orleans Inc.

Recently the Federal Emergency Management Agency (FEMA) changed flood insurance premiums for the first time in decades.

“The old model was kind of a 1986 Pontiac. It wasn't wrong, it could get you from point A to point B, but it was a pretty blunt instrument,” Roy Wright, CEO of the Insurance Institute for Business and Home Safety, said.

The new program is called Risk Rating 2.0. Wright, who also served as the former chief executive of FEMA’s National Flood Insurance Program, said the agency is using more science and better technology to recalculate everyone's flood risk.

“You need to pay a rate that is fair and specific to the community and the house where you live,” he explained.

The new program will impact everyone differently based on whether a person is a new or existing customer.

“Beginning October 2021, all of these changes affect new customers,” he said. “Beginning April 2022, as existing customers renew, they will experience these changes brought about by Risk Rating 2.0.”

“This is a very long time coming and it's certainly not without controversy,” said Jeff Schlegelmilch, director of the National Center for Disaster Preparedness at Columbia University.

“This is sort of a first step towards making the National Flood Insurance Program more solvent, but it’s only one small piece of a much larger consideration of where we build, how we build and what is the true cost of building in vulnerable areas,” Shlegelmilch added. “These disasters are happening with increasing frequency and intensity. The cost of these disasters continues to go up.”

The true impact of these rate changes will depend on where you live. Wright said about one in four families will see a price cut, and most will see their stay around the same. But others will have to pay more.

“There’s a group of 10 to 12 percent for whom they are presently paying less than they should, and they will see their rates take a series of steps forward in the coming years,” he said.

Those new rates won’t happen all at once.

”They will not see an increase of more than 18% per year,” Wright said.

But for some homeowners, this new ration system is causing a lot of confusion.

“Risk Rating 2.0 kind of snuck up on us,” said Bill Bubrig, agency owner at Bubrig Insurance Agency. “We can’t keep up right now with what we're dealing with with hurricane Ida and trying to answer people's questions with Risk Rating 2.0...we’re struggling down here.”

Bubrig is based in Louisiana.

“People with the existing flood policies at least have time to catch their breath, and they’re on this...path of 18 percent clip a year,” Bubrig explained. “But it’s the people who don't have existing flood policies that are now in from less than 600 dollars a year, to over 3,000 bucks immediately.”

Bubrig said over time it could impact where people build and move in the future.

“It’s going to kill the real estate world,” he said.

“We've continued to build and sell homes in flood-prone areas at insurance prices that don't reflect the actual risk,” Schlegelmilch said.

“Keeping pace with climate change is clearly part of the new risk rating approach,” Wright said.

“This is going to be not a today or tomorrow issue, this is going to be here for a while,” Ledet said.