FEMA Flood Insurance Changes 2021

Starting October 1, 2021, FEMA, The Federal Emergency Management Agency of the US Department of Homeland Security, is making its first substantial change to flood insurance policies since its inception in 1978.

Right now, homeowners are required to purchase flood insurance in FEMA-designated flood zones; the only considerations include the property's elevation and whether it has a 1% annual chance of flooding. Starting October 1, considerations will include the cost of replacing the home, proximity to source of flooding, the type of flood risk (river, rain, etc), and FEMA will also include modeling of potential future climate change impacts, including sea level rise and wildfire risk.

Currently, a $1,000,000 home in Florida pays the same rate as a $200,000 home in Montana. Current findings are that homes of lesser value are paying more than their risk warrants for flood insurance, and higher value homes are paying less. FEMA premiums are currently raised at 10% each year, and this change will impact that percentage increase each year for a home as well.

Flood zones are evaluated every 5 years. Many zones not currently qualified as high risk are outside of the established flood zone. One notable example is Hurricane Harvey in Houston, where 200,000 homes were damaged or lost, and 75% of them did not have flood insurance, as many were not in FEMA flood zones. Congress will be re-evaluating how and when flood zones are determined later this fall 2021.

Ultimately, the current program doesn’t offer enough coverage to those who need it. This significant change will pivot the onus onto those who will more likely incur the risk.

According to the UNs new climate report, climate change and its environmental impacts are accelerating faster than ever. Homeowners may see future policy changes influenced by the increased risk of other natural disasters including storms, earthquakes, and fires.

This change will affect the values of many homes in the US. The cost of the insurance and how it affects a home’s perceived value, and also the up-keep of older homes.

You may be asking, what does this mean for me? If you are a waterfront home buyer, you should input the property you are considering purchasing into Flood Factor. This is a service provided by First Street that evaluates the risk of flooding and climate change risk for all homes and provides their interpretation of the risk those properties have for potentially being impacted by these natural and unpredictable forces. 

Insurance costs are almost certain to keep escalating as climate change continues to spark 'big damage' events...combined with rising construction costs. 'Climate-proofing' will become even more important in home construction, adding more costs, that may potentially be offset by lower insurance premiums. Insurance risk assessors consider numerous construction methods that offset risk...such as a new fire/wind resistant roof, security systems that monitor for flooding, leaks, etc, using building materials resistant to wind, hail, etc, and of course, elevating homes. 

If you are currently a waterfront property owner and know that your property has a greater risk of being impacted by the upcoming FEMA changes, you may want to considering in the very near future before any negative impacts of future insurance costs affect the market value of your property.