FEMA’s National Flood Insurance Program is roughly $21 billion in debt, as its funds fall short of covering the damages sustained by enrolled homeowners in an era of increasingly common natural disasters. So it is recalculating its pricing to more accurately reflect risk.
For example, FEMA has found that wood-frame homes suffer more damage than brick-and-mortar homes, explained Gilbert Giron, the FEMA regional manager for the area that includes Texas, in a webinar on the new rating system. It took that into account in the pricing.
Builders can mitigate likely damage from a flood and lower future homeowners’ premiums by hundreds of dollars by taking the pricing factors into account from the new risk rating system.
People signing up for new policies are already seeing the new rates, but homeowners who already have FEMA flood insurance will not see the rates go into effect until April. Even then, annual premium increases are limited to 18 percent under law. Insurance agents remind homeowners that there are also private flood insurance options that could become more competitive as FEMA rates rise.
Here are some of the new pricing factors:
Foundation and elevation
A building’s foundation impacts its rates. A basement will have a higher rate than a similar building elevated on a slab or pier-and-beam. The more elevated the building, the greater the discount.
Rates are also cheaper for an elevated building with a foundation that is not enclosed, allowing the water instead to flow underneath. If a foundation is enclosed, discounts are available for buildings with proper flood vents. Such vents allow water to flow through the enclosure, relieving the pressure on the walls and minimizing damage to the foundation.
Raised machinery
Raising the equipment that keeps your building running can also lower your rates. The central air conditioner and heat pump (including the exterior compressors for both), the furnace, the hot water heater and any elevator machinery should be elevated in order to receive a discount on insurance policies covering damage to the building itself. Washers, dryers and freezers should be elevated in order receive a discount on insurance covering the contents of the building.
Construction type
Buildings made from brick (not brick veneer), concrete blocks or other masonry will have lower rates than similar buildings made of materials connected to a wood or metal frame.
Number of floors
If a building has multiple floors, a smaller portion of the building is likely to be damaged by a flood event. That building will have a lower premium than a comparable building with all of its square footage spread out on one floor.
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