FEMA Flood Insurance Updates Reflect Actual Risk to Each Home

Changes to how FEMA calculates flood risk will assess risk at a home-by-home level, rather than estimating the same risk to all homes in the same floodplain.

2 minute read

October 13, 2021, 10:00 AM PDT

By Diana Ionescu @aworkoffiction


Mexico City, Florida

Alan LeStourgeon / Shutterstock

FEMA's recent updates to its flood insurance program "will sharply raise the cost of flood insurance for many high-value homes in coastal states like Florida, sending dramatic new signals to current and potential waterfront homeowners about the risks they face from extreme weather fueled by climate change."

As reported by Jake Bittle, the new system "has triggered one of the most contentious climate adaptation debates in recent memory." While both sides agree that "the changes reflect a more accurate assessment of flood risk," some politicians "have petitioned FEMA to delay the rollout, hoping to protect their constituents from a decrease in property values that may accompany higher insurance premiums."

In its first update since the system was instituted in the 1960s, FEMA's risk analysis system now "estimates the individual risk facing each home, incorporating mountains of new data about water dynamics and the replacement cost for each home. The result is that homeowners will now pay premiums that reflect the specific flood risk for their home, rather than their general area." These changes rectify old inequities which forced some homeowners in an area to subsidize the costs to higher-risk homes.

"Still, this new rating system represents a partial fix to a program that has fundamental and longstanding issues." With heavily subsidized insurance rates, "The cost of insurance wasn’t high enough to discourage people from living in floodplains, so they just kept building near the water." This underfunding of the program was sharply felt "in 2005, when the claim payouts from Hurricanes Katrina and Rita plunged the program into a $20 billion debt hole that it still hasn’t emerged from."

"The changes from Risk Rating 2.0 are technical in nature, but they have serious political implications: The largest premium increases under the new system are for higher-value homes that are closer to the water." But politicians continue to advocate on behalf of wealthy homeowners. "[T]he spat over Risk Rating 2.0 centers around a question that will only become more relevant as climate change gets worse: How much should the public subsidize risky activity in economically important spheres like real estate?"

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