How will flood insurance rate hikes impact your city?

Most federal flood insurance policyholders will see an average rate increase of $88 in the first year of Risk Rating 2.0, according to a Policygenius analysis of FEMA data. Check to see how your city will be affected.

Pat Howard 1600

By 

Pat Howard

Pat Howard

Senior Editor & Licensed Home Insurance Expert

Pat Howard is a senior editor and licensed home insurance agent at Policygenius, where he specializes in homeowners insurance. His work and expertise has been featured in MarketWatch, Real Simple, Fox Business, VentureBeat, This Old House, Investopedia, Fatherly, Lifehacker, Better Homes & Garden, Property Casualty 360, and elsewhere.

Published January 24, 2022 | 5 min read

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Flooding is among the most common and expensive natural disasters in the U.S., causing billions of dollars in property damage each year. To help lessen the financial blow, the Federal Emergency Management Agency (FEMA) has introduced Risk Rating 2.0 — its new method for calculating flood insurance rates. 

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The new pricing methodology, which went into effect on new policies last October and is being rolled into existing policies this April, will increase the cost of flood insurance for roughly 77% of National Flood Insurance Program (NFIP) policies. This means around 3.8 million households with flood insurance are about to see their rates go up — around two in three of which are located in 19 coastal states. 

Key Findings

  • Flood insurance rates will increase by an average of $88 per year for the 77% of customers facing rate hikes under Risk Rating 2.0.

  • Over 1.1 million policyholders — or 23% of NFIP customers — will see their flood insurance rates decrease by an average of around $424 per year.

  • Roughly two in three NFIP customers will see a rate increase of $1 to $10 a month in year one of Risk Rating 2.0.

  • Around 3.8% of NFIP customers will experience a rate hikes of at least $240 in year one of Risk Rating 2.0.

How will Risk Rating 2.0 impact your city?

Flood risk is largely dependent on your home’s elevation and proximity to the water, so the cost of flood insurance tends to vary greatly by city. To give you an idea of how Risk Rating 2.0 may impact your community, we analyzed FEMA data for the 13,760 cities in the U.S. with at least five NFIP policyholders. 

Let’s take a look at an example. 

While 87% of Houston policyholders are expected to see higher rates under Risk Rating 2.0, we don’t expect too drastic a change. The average premium change for Houstonians is just $2 in year one, compared to a nearly $70 average rate change for Naples, Florida residents. 

Type in your city below to see how Risk Rating 2.0 will impact your community.  

To find the average annual rate change for each city, we calculated the mean of grouped data using a frequency distribution for each rate increase and decrease interval.

Most NFIP hubs will see rate increases

Of the 50 U.S. cities with the most NFIP policyholders, the cities of Baton Rouge, LA; Ocean City, MD; and Daytona Beach, FL are the only ones that will see a majority of its residents enjoy lower flood insurance rates under Risk Rating 2.0.

Cities facing the highest flood insurance rate increases

To find the cities with the highest expected rate hikes under Risk Rating 2.0, we analyzed data for 172 U.S. cities with at least 5,000 NFIP policyholders. Of these cities, 30 are expected to see an average rate increase of $100 per year or more — 23 of which are located in Texas and Florida.

CityTotal policiesAverage rate increase per yearPercentage with $240+ increase
Key West, FL10,168$16320%
Punta Gorda, FL15,208$14817%
Bellaire, TX5,112$14315%
Port Charlotte, FL12,494$14113%
Cape Coral, FL34,089$13012%
Key Largo, FL5,741$13010%
Sanibel, FL7,545$12910%
Galveston, TX18,337$1278%
North Fort Myers, FL7,057$1259%
San Jose, CA6,622$1235%
Saint Petersburg, FL68,608$12110%
Englewood, FL8,285$1219%
Slidell, LA21,160$11911%
Long Beach, NY9,283$11710%
Tampa, FL44,307$1169%
Seabrook, TX6,144$11510%
Fort Myers, FL48,599$1128%
Seminole, FL5,149$1117%
Fort Myers Beach, FL8,601$1099%
Clearwater, FL10,938$1077%
Gretna, LA10,570$1068%
Hoboken, NJ9,897$1066%
Palm Beach, FL9,147$1066%
New Port Richey, FL9,916$1046%
Key Biscayne, FL6,815$10310%

The table above shows the top 25 cities for average annual rate increases under Risk Rating 2.0. Cities were ranked by average rate increase per year, from highest to lowest.

Key West residents are expected to see the highest average rate increase in the first year of Risk Rating 2.0, according to our analysis. Around 91% of Key West policyholders face an average yearly rate increase of $163. 

Even worse, Key West has the highest percentage of residents facing a year-one increase of $240 or more per year — that’s almost 40% of what Florida residents currently pay for flood insurance each year ($613). 

Cities that could see significantly lower flood insurance rates

Not every flood insurance hub will see exclusively higher rates. Of the 169 U.S. cities with at least 1,000 households getting lower rates under Risk Rating 2.0, 32 will see more than half of their insured residents receive an average rate decrease of $410 in year one. 

While a handful of the cities we analyzed are inland with minimal-to-moderate flood risk, policyholders in several major NFIP hubs, including Galveston, TX; Denham Springs, LA; Charleston, SC; and New Orleans, LA, will see an average rate decrease of $653 under the new pricing methodology.

CityTotal policiesAverage rate decrease per yearPercentage with $240+ decrease
Port Bolivar, TX2,385$1,14551%
Freeport, NY3,258$86433%
Huntington Beach, CA3,849$78531%
Galveston, TX18,337$77822%
Long Beach, NY9,283$75523%
Staten Island, NY6,257$74429%
Point Pleasant Beach, NJ4,317$70122%
Bronx, NY2,993$68933%
Indianapolis, IN3,644$67640%
Denham Springs, LA12,019$67620%
Kitty Hawk, NC4,207$67527%
Palo Alto, CA3,723$63532%
Charleston, SC34,527$60422%
El Paso, TX3,397$59836%
Abilene, TX2,144$59442%
Des Plaines, IL1,672$58234%
Fort Worth, TX3,164$57824%
Phoenix, AZ3,808$57524%
Nashville, TN4,878$57213%
Louisville, KY3,920$56826%
Nags Head, NC3,174$56121%
Monroe, LA4,723$55841%
New Orleans, LA91,326$55512%
Shreveport, LA5,052$52826%
Alexandria, LA2,434$52639%

The table above shows the top 25 cities for average annual rate decreases under Risk Rating 2.0. Cities were ranked by average rate decrease per year, from highest to lowest.

Interestingly enough, Galveston, TX and Long Beach, NY — two cities expected to see significant rate increases in certain areas — will also see the highest rate decreases under Risk Rating 2.0.

Flood insurance rates by state under Risk Rating 2.0

Roughly 53% of all rate increases under Risk Rating 2.0 will apply to insured households in Texas and Florida. The average flood insurance policy increase in these states is around $83 — right around the national average.

But it’s actually states in the Midwest and Northeast that will see the highest average rate increase. Policyholders in Connecticut, Vermont, West Virginia, Maine, and Missouri will see an average annual increase of $122 when the new rates go into effect next April.  

However, when taken in aggregate, flood insurance costs may actually go down across the board under Risk Rating 2.0, according to our analysis. The average annual rate change for all policies is -$46, according to our calculations.

What is Risk Rating 2.0?

Risk Rating 2.0 is FEMA’s updated method for calculating flood insurance rates. The agency’s restructured methodology went into effect for new policies on Oct. 1, 2021, and will take effect on policy renewals (aka existing policies) on or after April 1, 2022. According to FEMA, the new rates more accurately reflect a property’s actual flood risk.

Before Risk Rating 2.0, premiums were primarily based on which flood zone you lived in according to outdated, often unreliable federal flood maps. In fact, it wasn’t uncommon for homeowners in lower-risk areas to be incorrectly placed in flood zones and overcharged by thousands of dollars. [1] On the flip side, homeowners in actual floodplains were often being vastly undercharged for flood insurance. 

This rate imbalance has culminated in a program that’s currently over $20 billion in debt to the U.S. Treasury. In past years, the NFIP’s solution to paying down this debt was to simply increase rates on everyone via a blanket premium surcharge. 

But this was neither an effective nor equitable solution. FEMA continued to accrue debt, homeowners in high-risk — and often wealthier — communities continued to pay an unfairly subsidized rate, and all of this came at the expense of low- to middle-income policyholders who could least afford a rate increase.

But FEMA says Risk Rating 2.0 produces rates that are both actuarially sound and equitable. In other words, the amount you pay for flood insurance will more closely align with your home’s actual flood risk. 

How will new rates be calculated under Risk Rating 2.0?

While they haven't disclosed exactly how the new rates are being calculated, it will likely incorporate several sources of coastal and inland flooding, including river overflows, storm surge, and heavy rainfall. Under the old system, flood risk was primarily based on whether or not you lived near a major body of water. 

In addition to enhanced flood models, FEMA also says property-specific factors, like your home’s rebuild value, will be factored into the new rates. 

How to deal with a flood insurance rate increase

If you’re one of the 77% of NFIP customers who will see their flood insurance rates increase under Risk Rating 2.0, you have a few months to prepare — your rate increase won't kick in until spring. 

There are several steps you can take to decrease your home’s flood risk and also lower your flood insurance rates. According to FEMA, these are the most effective ways to lower your flood insurance rates. 

  • Flood-proof your home. Elevating your house, moving water heaters and other systems to higher ground, filling in your crawlspace, and installing flood openings on exterior walls can all decrease your home’s flood risk and can lead to lower rates. Check out FEMA’s guide to flood retrofitting for more information.

  • Raise your policy deductible. Raising your deductible to the $10,000 max can reduce your rates by as much as 40%, according to FEMA. But keep in mind that a higher deductible means you’ll be paying more out of pocket when you file a claim.

  • Use an elevation certificate. An elevation certificate details your home’s flood risk. If you have one, provide it to your insurance agent — it could help lower your rates.

  • Ask about community-wide discounts. FEMA flood insurance customers in communities enrolled in the Community Rating System (CRS) are eligible for discounts between 5% and 45%, according to the NFIP. Check here to see if your community participates in FEMA’s CRS

Consider private flood insurance

While it only makes up about 5% of the residential flood insurance market, private flood insurance has become an increasingly popular alternative to FEMA flood insurance. Private flood insurance is written and funded by private insurance companies, so it won’t be impacted by Risk Rating 2.0. 

Before the rate hikes, it was already seen as a cheaper alternative to federal flood insurance, especially for residents who lived in areas with lower flood risk. If you feel you’re being charged too much for NFIP coverage, or you’re interested in more comprehensive coverage with a shorter waiting period, it may be worth turning to private flood insurance.

Methodology

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For this report, Policygenius analyzed FEMA-published data of flood insurance rate changes under Risk Rating 2.0, its new rating methodology. The data included rate change information for every state and zip code in the U.S. with at least five NFIP policyholders. Policygenius then matched each of these zip codes to its corresponding state and city.

To find the average annual rate increase, decrease, and rate change for each city and state, we calculated the mean of grouped data using a frequency distribution for each rate increase and decrease interval (-$20 to -$10, -$10 to $0, $0 to $10, $10 to $20, etc) assigned to each policy by FEMA.