The federal government’s new model for pricing flood insurance policies aims to be more equitable, more individualized and more sustainable — but for some in this area, unaffordable. The new model nearly quadruples the average cost of a policy in parts of Washington.
Under the new pricing model finalized by the Federal Emergency Management Agency (FEMA) this year, the average annual price for the 25 flood insurance policies in the 63090 zip code will increase from $1,082 to $4,294, according to FEMA data.
Meanwhile, in the 63084 zip code (Union), the average policy price is expected to jump from $942 to $1,867. The average price of policies in the 63089 zip code (Villa Ridge) will increase from $1,126 to $2,594. In the 63357 area code (Marthasville), the average price will jump from $1,768 to $3,510. The cost of policies in the 63077 (St. Clair) and 63069 (Pacific) zip codes are also projected to more than double, from $1,015 to $2,520 and from $1,200 to $3,023, respectively.
These price hikes will not take place all at once due to a cap set by Congress of 18 percent increases each year. Most area policyholders will see gradual, continuous premium increases each year until reaching the new cost of their policy. But even so, FEMA’s new model suggests the agency expects flood insurance claims in this area to increase in frequency, dollar amount or both in the coming years.
A representative from FEMA said in an email that the new approach, dubbed “Risk Rating 2.0,” takes into account “flood frequency, multiple flood types—river overflow, storm surge, coastal erosion and heavy rainfall—and distance to a water source along with property characteristics such as elevation and the cost to rebuild.”
That’s a departure from the approach that FEMA has taken since the 1970s, according to Anna Weber, a senior policy analyst on floods with the Natural Resources Defense Council.
In the past, she said, “there was a very binary approach to the way that flood insurance was priced: Are you in the floodplain, or are you out?”
The old model was part of the reason FEMA’s flood insurance program has gone so far into debt — $20.5 billion, costing the federal government $280 million in interest payments in 2022 alone, according to the agency. The old model was not “actuarially sound” because it didn’t account for the wide variety of flood risk factors of each property.
Weber explained that for many policyholders across the country, the new model will actually lower premiums or keep them almost the same.
“It’s a relatively small percentage of the overall population that are seeing these really, really big price increases,” she said. “Of course, if you’re one of those people who is facing a giant rate hike, that’s not very comforting.”
Flood insurance is not optional in areas where FEMA assesses the risk of a flood each year to be 1 percent or higher; these areas are called special flood hazard zones. Federal law requires properties in these zones to be insured against flooding if the property’s mortgage is federally-backed.
However, FEMA can make mistakes when deciding a property must have flood insurance, as in the case of Washington resident Russell Henderson. FEMA updated its map of the area in September of 2011. According to Henderson, FEMA’s data showed his entire property as within the special flood hazard zone — but in reality, only his backyard is. The basement of his actual home, he said, sits about a foot above the floodline.
Henderson was required to buy a policy while he contested FEMA’s designation, a process he said took him two years of back-and-forth communication with the agency.
Henderson’s situation will likely become less common under the new formula, now that FEMA bases its policy premiums on individualized data. But the sharp price increases in the region suggest that FEMA foresees high property damage in the future.
“That’s an important signal of information: If your flood insurance is really high, that’s a sign that your risk is probably high,” Weber said.
This means many property owners will face a difficult choice: pay ballooning premiums or let their coverage lapse. In fact, Weber said FEMA is not authorized to consider whether a property owner can afford their flood insurance policy when setting the premiums. As a result, she said, some owners may decline to renew their policy after the first year because they cannot afford it.
And since standard home insurance rarely includes flood insurance, those property owners have no options and no safety net if a flood hits their area.
Henderson said when he finally won his appeal with FEMA, he was refunded for most of the premiums he paid and decided not to renew his coverage. He does not feel his property needs flood insurance, pointing to mitigating infrastructure in his part of Washington.
“I could if I wanted to, but with all the improvements they’ve done in my area since ’93 … I don’t feel the need to buy it,” Henderson said.
Weber said the flood insurance program is currently at an “inflection point” and needs further updating in order to help more people and stay funded. Those updates could include authorizing FEMA to institute an affordability program to increase participation and decrease the risk pool.
“We could be making changes to the program that make flood insurance a lot more accessible and reduce that risk,” she said. “Or we could be headed towards a future where it gets more and more expensive, and fewer and fewer people can buy it.”