Should You Have Flood Insurance?

Hurricane Ida recently soaked the tri state area. According to CNN, the NYC and many local towns were never designed to withstand such flooding – and it showed. In addition to the massive property damage, at least 46 people died in the region.

Flooding is a major threat, and recent studies have shown that the flood maps that have been in use for decades are badly outdated. As a result, many property owners may not know their actual risk, and insurance rates may not accurately reflect risk levels. The good news is that this is changing. New flood maps are providing a more accurate assessment of risks, and changes to the flood insurance program will impact how rates are calculated.

The Urgent Need for New Flood Maps

In early 2020, Scientific American reported that at least two separate reports had found the FEMA flood maps to be lacking: a report from the Association of State Floodplain Managers criticized the maps for covering less than half of the country’s streams and shoreline, and a report from R Street Institute found that the maps were badly outdated.

At the same time, climate change may be increasing the flood risk in many areas. According to First Street Foundation, when adjusting for climate change, close to 4.3 million homes have substantial flood risk, but flood risk is often underestimated.

The consensus was clear. New maps were needed.

First Street Foundation created new property-level and publicly available flood risk maps. Using Flood Factor, you can enter any address in the country and get a risk assessment that include the Flood Factor risk score and the likelihood of flooding within 30 years, as well as some other useful information to help users understand the flood risk.

FEMA has also updated its flood maps. According to GovTech, these updates went into effect on August 24, 2021, and the revisions could impact premiums as well as which homeowners need to obtain coverage.

Flood Insurance Misconceptions

Marketwatch recently reported that 53% of homeowners mistakenly believe that flood damage is covered under that standard insurance plans, when in fact only 10% of the flood risk is insured by the National Flood Insurance Program.

Updating Insurance Rates

FEMA is updating its National Flood Insurance Program’s risk rating methodology. The new pricing model is being called Risk Rating 2.0.

Since the 1970s, rates have been based on mostly static measurements that focus largely on a property’s elevation. The new model incorporates many more flooding variables to create more accurate rates. The model also incorporates rebuilding costs to make premiums more equitable – under the old model, owners of lower-valued homes could end up paying more than their fair share.

The new risk model will be rolled out in two phases:

Starting on October 1, 2021, new policies will use the new risk model, and policyholders who are eligible for renewal may be able to use the new model to lower their premium.
Starting on April 1, 2022, all policies will use the new rating model.

The Takeaway

We’ve already seen rising rates and other insurance difficulties in catastrophe-prone areas. As climate change increases the risk of severe weather-related events, insurance costs will likely continue to rise.

This is something that homebuyers and their advisors should consider carefully. In addition to using resources like Flood Factor to assess risks, homeowners may also want to invest in climate-proofing upgrades. Although these investments will add immediate costs, they may result in lower insurance premiums and reduced risks in the long run.

The personal insurance team at BNC Insurance is here to help. Contact us to learn more.