FEMA overhauled flood insurance program for the first time ever. Why states are suing
FEMA began overhauling the National Flood Insurance Program (NFIP) in October 2021; the first time the program’s methodology received any sort of changes since the 1970s. The overhaul has now prompted lawsuits from 10 states, including Florida, who say the system will drive up premiums for property owners.
Louisiana Attorney General Jeff Landry filed the lawsuit on June 1 in the federal Eastern District of Louisiana against defendants, including the Federal Emergency Management Agency, nearly two months after the proposed changes went into effect on April 1, according to the News Service of Florida.
Part of the lawsuit alleges that high flood insurance rates will cause people to leave Florida due to rising costs and depress property values.
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“While the agency (Federal Emergency Management Agency) paints a picture of nuanced calculations using massive data repositories that reveal a property’s individualized risks, the reality is much simpler: Flood insurance is going to be much more expensive for pretty much everybody,” the lawsuit said.
FEMA claims that Risk Rating 2.0 is a “transformational leap forward” for the NFIP by addressing rating disparities that include more flood risk variables. Flood frequency, flood types, distance to water, cost to rebuild and other property characteristics are all included in the new pricing methodology.
“Policyholders with lower-valued homes may have been paying more than their share of the risk while policyholders with higher-valued homes may have been paying less than their share of the risk,” the agency said.
Why did FEMA overhaul the National Flood Insurance Program?
FEMA updated its rating methodology to what it has dubbed “Risk Rating 2.0” to “equitably distribute premiums across all policyholders based on home value and a property’s flood risk, and set rates that are fairer and more equitable.”
According to its site, the organization used the same methodology it has used since the NFIP began in 1970 to calculate premiums. It relied on mostly static measurements and emphasized a property’s elevation within a zone on a flood map.
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Risk Rating 2.0 incorporates private sector data sets, catastrophe models and “actuarial” science, in addition to accounting for the cost of rebuilding a home. FEMA says the new model will help level the playing field as lower-valued homes were likely “paying more than their share of the risk while higher-valued homes may have been paying less than their share of the risk.”
FEMA ultimately believes that the overhaul will make premiums easier to understand, deliver more equitable rates and better reflect a property’s individual flood risk.
What are the changes to the new flood insurance program?
For policyholders, changes to NFIP will be mostly invisible as they are more under-the-hood tweaks. Here’s what policyholders can expect to see and an overview of the more unseen changes.
Changes to flood insurance premiums — Rate changes will be the biggest change to most policyholders. Under the previous methodology, FEMA says the average policyholder sees an average increase of $8 per month. It says that 96% of current policyholders will see either an immediate decrease or $20 or less per month increase in their premiums.
Here’s a clearer breakdown:
About 23% of policyholders will see an immediate $86 per month decrease, on average.
About 66% of policyholders will see an average monthly increase between $0 and $10.
About 7% of policyholders will see an average monthly increase between $10 and $20.
About 4% of policyholders will see an average monthly increase greater than $20.
FEMA claims that flood increases will not continue indefinitely, like they did under the previous methodology.
Expanding policy discounts — FEMA is expanding policy discounts by making them available to properties located outside high-risk flood areas. Properties are eligible for discounts after owners take steps to mitigate the risk of flood damage to their property, such as elevating a building or installing proper flood openings in crawlspaces.
Updated rating factors — The previous methodology treated most homes similarly, regardless of the home’s replacement cost or its individual flood risk. The new methodology is informed by models that account for the aforementioned factors along with private sector data, catastrophe models, the home’s distance to a flood source, types and frequency of flooding and other property characteristics.
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What isn’t changing?
While there are a lot of things changing with the new NFIP, there are plenty of things staying the same.
Limiting annual premium increases — Annual premium increases will still be capped at no more than 18% per year.
Using Flood Insurance Rate Maps for mandatory purchase and floodplain management — FEMA says that it uses flood map data to inform its catastrophe models used to develop rates under Risk Rating 2.0, and that it will continue to use that data for floodplain management building requirements and mandatory purchase requirements.
Discounts — FEMA will continue offering premium discounts for pre-FIRM subsidized and newly mapped properties. It will also keep discounts for policyholders in communities who participate in the Community Rating System.
Transferring policies — Policyholders selling a home can still transfer discounts to a new owner by assigning their flood insurance policy when their property changes ownership.
Lawsuit filed: States join Louisiana to sue federal agency over flood insurance rules
Which states are suing the National Flood Insurance Program?
Florida, Louisiana (including several local governments), Idaho, Kentucky, Mississippi, Montana, North Dakota, South Dakota, Texas and Virginia, the News Service of Florida reported.
Why are states suing over the flood program?
There are several allegations peppered throughout the 146-page lawsuit, but the rising cost of flood insurance is one of the primary reasons cited.
While the annual flood insurance premium increases are capped at 18%, the initial implementation will increase rates for some customers well beyond that.
“While the agency (Federal Emergency Management Agency) paints a picture of nuanced calculations using massive data repositories that reveal a property’s individualized risks, the reality is much simpler: Flood insurance is going to be much more expensive for pretty much everybody,” the lawsuit said.
The Associated Press reported that in a lawsuit filed in April seeking access to information and data used to calculate rates, St. Charles Parish officials said the average cost of flood insurance policies there will increase from $815 to $2,766 annually.
States like Louisiana and Florida fear that these drastic rate increases could drive people from their homes, increase foreclosures and depress property values.
The lawsuit also cites the Administrative Procedure Act, which it asserts that federal officials violated by making “arbitrary and capricious” changes such as FEMA’s consideration of climate change, saying it “does not relate to the risk a property actually faces today.”
How will the new flood insurance overhaul affect Florida?
An interactive map that breaks down projected premium changes by state and territory for the first year can be found here.
The map, which was developed by the Association of State Floodplain Managers and The Pew Charitable Trusts, shows that the majority of Florida policyholders can expect to see an increase in their flood premium.
The table below gives a broad overview of how Florida insurance premiums are expected to change in the first year. A breakdown by zip code can be found here.
This article originally appeared on Pensacola News Journal: Flood insurance changes draw lawsuits from Florida, other states
