(Reuters) – Hundreds of thousands of Americans will pay significantly more to insure their homes in coastal areas and flood zones under new rules released Thursday by the Federal Emergency Management Agency, the first major update to its half-price system
said that in the coming year it will be phased into a pricing method that marks an epoch-making shift in the national flood insurance program, which was established in 1968 to cover properties in flood-prone areas.
New premiums will be based on the value of a property, risk of flooding and other factors, rather than just the height of a property in a flood zone. They will take effect on October 1, 2021 for new policies and April 1
NFIP currently provides $ 1.3 trillion in coverage through more than 5 million US policies, but has lost money for several years and is currently $ 20.5 billion in debt.
The new rules will mean sharp increases in expensive real estate in rich coastal enclaves, says Jeremy Porter, director of research and development at First Street Foundation, a Brooklyn, New York-based nonprofit organization studying flood risk.
Current flood zone-based pricing was "basically a subsidy to humans," Porter said. According to FEMA's new system, "pricing is based on your insurance risk."
FEMA said it expects 4%, or more than 200,000 insurance policies, will see significant premium increases, while about $ 1.15 million will decrease, noting that the change makes rates "fairer."
In a study released in February on flood-prone real estate rather than politics, First Street determined that more than 4 million would face increases and the average premium in flood zones would be $ 7,895 per year.
The figures in the First Street study are higher than FEMA because only about 30% of flood-prone properties have NFIP coverage, Porter stated.
The changes mark the first update of FEMA's pricing methods in 50 years and are based on updated technology and FEMA's growing knowledge of flood risk, the agency said.