The Federal Emergency Management Agency, which administers the government’s National Flood Insurance Program (NFIP), has unveiled a vastly changed new pricing structure for its roughly 5 million policyholders nationwide. Under the plan, which went into effect on Oct. 1, 2021, around 77% of policyholders will see their premiums increase, while 23% can expect decreases, according to a FEMA analysis. Here’s what you need to know.

Key points to remember

  • FEMA’s overhauled federal flood insurance rate system went into effect on October 1, making historic changes to long-standing methods of calculating premiums.
  • High-value homes in high-risk areas would see the biggest increases, while low-value properties in less flood-prone areas are expected to see their prices drop.
  • New policies are now subject to the new rate structure, while existing policies that renew on April 1, 2022 will see rates changed.

Homeowners of High Risk Property Should Prepare for Hikes

FEMA predicts that in the first year, 66% of policyholders will see increases of up to $ 10 per month, 7% will see increases of $ 10 to $ 20, and 4% will see increases of more than $ 20 . High-value homes in the highest-risk areas are expected to see the biggest increases.

An independent analysis conducted earlier this year by the nonprofit research group First Street Foundation found that the average rate would need to increase 4.5 times to cover the risk on the nation’s most flood-prone homes in 2021, and 7.2 times to cover the growing risk by 2051.

While the greatest flood risk is focused on a relatively small number of properties, Michael Lopes, director of communications for the First Street Foundation, told Investopedia he assumes that for properties in the category “over 20 $ “From FEMA,” the increase could be very large, possibly totaling several hundred or even thousands of dollars a year. ”

This observation rings true with media reports in recent days of the new experiences of policyholders and insurance agents, reflecting the sharp increases in premiums.

However, FEMA data provided to Investopedia indicates that policyholders who currently pay the most under the old method will pay considerably less under the new 2.0 risk rating. The maximum cost of a single-family home insurance policy would currently be $ 12,125 (including premium, fees and surcharges) compared to $ 45,925 previously.

Tackling injustice in the pricing of policies

FEMA first unveiled details of its planned flood insurance overhaul, called Risk Rating 2.0, in April. The initiative represents a major effort to more accurately reflect the flood risk that individual properties face and the biggest change in the way the agency calculates flood insurance premiums since the program’s inception in 1968 .

Rather than calculating premiums based on flood zone maps, bounties will now be based on characteristics of individual properties, such as proximity to coasts or rivers, type of foundation, and current cost of reconstruction.

The goal is to address long-standing inequalities in pricing, says David Maurstad, FEMA senior executive for the NFIP, who acknowledged that “some of our policyholders are unfairly subsidizing other policyholders.”

Under the new rate setting system, “policyholders with lower value houses who have paid more than they should will no longer bear the cost of policyholders with higher value houses who have paid less than they should. ‘they shouldn’t have been,’ Maurstad said at the press conference. a recent press call.


Flood insurance covers water damage to a home that a regular home insurance policy does not cover.

How will the program be phased in

FEMA manages the National Flood Insurance Program through a network of approximately 60 insurance companies and NFIP Direct.

For existing flood insurance policies, the changes will not apply to renewals until April 1, 2022, with annual increases capped at 18% by law until they reach the full rate, typically on a trajectory of 10 to 15 years. Existing policyholders who are eligible for renewal and at lower rates, however, may request immediate rebates starting October 1. New policies starting October 1 will be subject to the new method.

Existing policyholders and anyone purchasing a policy can get a summary of how rates will go up or down by state, county, and zip code in the new system by searching FEMA Policy and Location Profiles.

Homeowners can also assess the risk of flooding their property using, a tool from the First Street Foundation that assesses the risk of 142 million homes and properties in the United States over a 30-year mortgage.

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