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New Fema methodology could spike rates for NFIP policyholders

Aerial drone view entire Neighborhood under water near Austin , Texas

The reality of the new methodology used for the National Flood Insurance Program (NFIP) is hitting home as more than 75% of policyholders learn they are facing premium increases – in some cases significant hikes.

The Federal Emergency Management Agency (Fema) moved ahead on October 1 with its updated risk rating methodology over objections from insurance agents and lawmakers from several coastal states.

The agency is using a phased rollout that enables its existing policyholders to renew this fall. Starting April 1, all remaining policies will be written under the new pricing plan at the time of renewal.

The updated methodology for the heavily subsidized coverage leverages industry best practices and innovative technology to enable Fema to deliver rates that are actuarily sound, equitable, easier to understand and better reflect a property’s flood risk.

In short, the methodology factors in more than just a home’s elevation to determine flood risk, including things like the size of a home.

About one million policyholders, or 3% of those enrolled in NFIP, are expected to see automatic decreases in their premium at renewal, Fema said. But policyholders with higher risk profiles and more expensive homes will pay more.

While Fema estimates that the average hike will be about $10 a month, in some cases it will come in sharply higher. Reuters on Monday described one New Mexico homeowner whose premium was already more than he could afford, and he junked his policy when he learned he was facing a rate of $11,000 a year at renewal.

In some parts of Florida, where rising seas and worsening hurricanes are a particular threat, some homeowners could see tenfold increases, the New York Times reported.

Moreover, since most rate increases are capped by statute at 18% per year, Fema estimates premium changes will continue for years, until the new risk rate is fully realized.

In a letter last month, nine US senators from Florida, Mississippi, Louisiana, New Jersey and New York, including Senate Majority Leader Chuck Schumer, asked Fema to delay the new methodology.

The agency moved ahead anyway.

The industry widely sees flood coverage as underutilized and points to a need to expand coverage beyond high-hazard zones as severe events become more frequent.

Fema said the update is driven by increased catastrophe incidents and climate change. “The new methodology adapts to climate change by using the full range of flood risk across a suite of catastrophe models – both government models and private sector models,” the agency said in a press release.

“Because actuarial rates are based on the expected claims during the one-year policy period, they should reflect today’s risk. Future rates will be updated to reflect any changes, including climate impacts.”

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