Federal Flood Insurance Premiums Skyrocket for High-Risk Area Homeowners

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Just as the winter weather is finally starting to warm up and snow-covered cities across the U.S. are starting to see sunlight, homeowners who have purchased flood insurance under the federally backed National Flood Insurance Program (NIFP) received an unwelcome surprise: starting on April 1st, policyholders have begun receiving renewal notices with substantially higher premium rates than before.

According to the New York Times, the rate changes are not consistent across the board; instead, the majority of homeowners will see increases between 15% and 18%, but homeowners living in high-risk flood areas will begin to see premiums increase by as much as 25%. Additionally, new surcharges will be applied for both owner-occupied homes ($25) and secondary and multifamily homes ($250).

This premium spike is especially frustrating because most homeowners’ insurance policies don’t cover flood damage, and the cost to repair water damage (without insurance) in the average American basement can be anywhere between $3,000 and $5,000.

According to Insurance Journal, the rate increase was passed with the hope that it would “help pay down” the NIFP’s outstanding $24 billion of debt, which is a result of multiple large-scale “catastrophe claims” from storms like Hurricane Sandy and Hurricane Katrina.

In 2012, Congress passed the Biggert-Waters Flood Insurance Reform Act, which began eliminating federal discounts from flood insurance policies in high-risk areas, and which was an unsuccessful attempt to whittle down the NIFP’s debt.

In 2014, Congress revisited the issue and passed the Flood Insurance Affordability Act, which was ironically intended to protect homeowners living in high-risk areas by limiting how much insurance companies can increase premiums for these areas — but that didn’t seem to protect homeowners very much from the latest NIFP rate change.

Although expensive coastal properties tend to make up the majority of “high-risk areas,” and the owners of these properties can easily cover the extra 25% increase, critics of the rate change have noted that many low-income and middle class families live in the areas affected by Sandy and Katrina — and because these homes have filed recent claims, they may be funneled into that “high-risk area,” pool despite not being very much at risk for constant flooding.

In the past, homeowners have been encouraged to take preventative measures against flood damage by purchasing separate insurance policies, but with the latest rate increases, it seems very likely that the federal government won’t be providing flood insurance to 5.2 million homeowners after the 2015 plan renewal timeframe has passed.

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