After dealing with back-to-back flooding disasters affecting millions of Americans, the Federal Emergency Management Agency (FEMA) has decided to restructure its flood insurance program to better accommodate the realities of today’s insurance claims.

FEMA runs the National Flood Insurance Program that has traditionally based prices on whether or not a home is within a 100-year flood plain. Now, the agency wants to set premiums with a more exact calculation of the true flood risk to each individual home. The new premium calculations will become effective in October 2020.

FEMA says it “is working closely with its Direct Servicing Agent (DSA) and Write Your Own (WYP) program participating insurance companies that sell and service federal flood insurance so eligible policyholders may receive refunds starting this fall.”

While the new rate tables are being assembled, FEMA says it has issued guidelines to make sure the most impacted policyholders won’t face rates higher than the law now requires.

Most Americans who have flood coverage obtain it through the National Flood Insurance Program. Nearly 5 million people hold policies today, but the number of policies held through the program has dropped by 10 percent since 2009, despite an uptick of serious flooding events.

The National Flood Insurance Program was $30 billion in debt at the end of 2017. Homeowners who have never lived in a traditional flood plain find themselves fighting water from record-breaking precipitation, and not just catastrophic hurricanes. Many homeowners who are at risk of losing everything to a flood don’t have flood insurance at all.

FEMA insists the new premium structure is necessary not just because there have been more claims come in that premiums received. The “one size fits all” approach to premiums for people in the 100-year flood plain hasn’t been fair to the people who are at little risk of flooding.

The new premium rate structure would incorporate models that reflect actual flood risk. One home’s premium might fall by nearly 60 percent, while another home’s premium might increase by more than twice the old rate.

Know Your Coverage Before You Need to Make Insurance Claims

FEMA offers a list of questions you will want to ask your agent regarding how flood insurance works. Your first question is whether your community participates in the National Flood Insurance Program or not.

If you do live in a flood zone, what is your specific property’s flood risk? How long will it take from the day you purchase flood insurance for the policy to become effective? Normally, coverage begins 30 days from the date of purchase, but your insurance agent can tell you the exact date your coverage will begin. It’s important to know when you’re eligible to make insurance claims that will be covered, even though you hope you’ll never need it.

Find out if flood insurance is mandatory for your home according to your lender’s requirements. Also ask if you qualify for a Preferred Risk Policy, which would allow you to pay a lower premium.

The amount of coverage you need will depend upon the size of the home and its contents. Some policies provide the Replacement Cost Value as opposed to the Actual Cash Value of the contents. The latter is equal to the replacement cost minus depreciation.

Finally, ask if your policy automatically renews or if you need to take steps to renew it.

This article is not legal advice. It is presented
for informational purposes only.