FEMA’s new insurance system aims to make premiums fairer as climate change raises flooding risks

Many property owners across the Philadelphia area hadn’t had to think twice about their flood risk. Then came the remnants of Hurricane Ida, the jaw-dropping flooding of the Vine Street Expressway, and the extensive damage to homes and businesses that don’t normally flood.

As climate change worsens flooding — already the country’s most frequent and expensive natural disaster — the Federal Emergency Management Agency is making the biggest changes in its history over the way it charges property owners for its flood insurance. The changes reflect better data and the agency’s desire to make the system fairer and easier for property owners to use. Those with more valuable properties at high risk of flooding — think large Shore homes — will now pay more, while owners of less valuable properties at low risk pay less.

The system sounds like common sense. But under the way FEMA calculated rates for policies in the National Flood Insurance Program for the last four decades, owners of less valuable properties at lower risk overpaid and helped cover costs for owners with more highly valued properties at higher risk. Owners’ premiums mainly depended on their elevation and location in zones on FEMA’s flood maps.

» READ MORE: How to file a Hurricane Ida damage claim for wind and flooding

Now, under a more sophisticated system, owners will pay based on their property’s individual risk and actual costs of replacing structures. FEMA is taking advantage of technological advancements, geographic location data, and lessons learned over the decades. The agency will use flood maps for flood management and to determine who is required to purchase flood insurance but not for insurance rates.

The new system results in “a much more accurate premium and a fairer premium to everyone involved,” said Richard Sobota, a senior flood insurance specialist at FEMA.

The agency started changing how it priced new flood insurance policies in October. Starting this month, changes will start kicking in for existing policyholders when their policies renew. Cost decreases will take effect immediately, while FEMA will phase increases in gradually. Rate discounts didn’t happen under the old system.

» READ MORE: After Ida destroyed hundreds of Pa. homes and caused more than $100 million in damage, residents await disaster relief

Of the nearly 20,000 National Flood Insurance Program policies for residential and commercial real estate in Philadelphia and surrounding counties, premiums will increase for about 65% of policyholders, according to an analysis of FEMA data by QuoteWizard, the insurance division of the online lending marketplace LendingTree. Most increases will be less than $20 per month.

In Philadelphia, almost 45% of single-family policyholders should pay less for their insurance, according to an analysis of FEMA data by the Pew Charitable Trusts. Of those who will pay more, about 94% will pay no greater than $10 more per month.

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In addition to costs of rebuilding, the federal agency will determine individual properties’ flood risks based on criteria such as elevation and other property characteristics; physical characteristics of the area; historical frequency of flooding; flood type, such as river or coastal surge; and proximity to water sources.

“This really makes it a much fairer system where people are paying based on the risks they are facing rather than everybody covering for everybody,” said Nick VinZant, senior research analyst at QuoteWizard by LendingTree. “A small house on a high hill that never floods is no longer going to be paying for the beachfront mansion.”

The change in how FEMA sets flood insurance premiums is “long overdue” and “catapult[s] this program into the 21st Century by integrating new data” from the insurance industry and scientific models that more accurately assess individual flood risk, said Laura Lightbody, project director of Pew’s flood-prepared communities initiative, which is aimed at reducing the impacts of flood-related disasters.

More homes are susceptible to flooding than people might think. Homes can flood in any place that gets rain, and the risk of flooding caused by rain is worsening. Most homeowners insurance does not cover damage from flooding. Communities also have built more homes in flood-prone areas, which increases the costs of flood damage.

Raising the price of living in riskier areas may encourage less risky development, Lightbody said.

“The price of insurance should be a factor when communities, policymakers, are considering where and how to either develop, grow, or rebuild,” she said.

Nationwide, four in five National Flood Insurance Program policyholders will pay more for coverage, according to analysis by QuoteWizard by LendingTree. Roughly 1.2 million of the program’s more than five million policyholders will pay less. Across New Jersey and Pennsylvania, while a larger number of people will see a relatively small increase, a small number of people will see significant decreases, VinZant said.

» READ MORE: ‘I can’t get out’: These families lost their homes in Hurricane Ida. They were stuck in hotels six months later.

“I was surprised to see how many people were overpaying before,” he said. “And how much they were overpaying by.”

FEMA’s new rate system will ensure the agency, which is in debt, is charging the rates it needs to pay for damage from the next Hurricane Katrina or Superstorm Sandy without having to borrow money from Congress, said Sobota at FEMA.

Almost 52,000 policies in Pennsylvania and more than 217,000 in New Jersey fall under the National Flood Insurance Program and are subject to the changes. These policies cover about 36,000 single-family homes in the Keystone State and 116,000 homes in the Garden State. The national program covers the majority of flood insurance policyholders in the region, while private insurers cover the rest.

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Under FEMA’s new system, property owners also can more quickly find out how much they would pay for flood insurance, receiving a quote in about 20 minutes, Sobota said. The old system involved a long, drawn-out process, he said.

Policyholders in the National Flood Insurance Program will receive notice of rate changes 45 days before policies renew.

The Philadelphia Inquirer is one of more than 20 news organizations producing Broke in Philly, a collaborative reporting project on solutions to poverty and the city’s push toward economic justice. See all of our reporting at brokeinphilly.org.