Florida Keys homeowners could experience significant flood insurance rate increases when the federal government’s new rate setting plan goes into effect on Oct. 1 as planned.
Homeowners throughout Monroe County could see National Flood Insurance Program (NFIP) policy rate increases from $100 to $9,000 annually — with an average increase of $3,200 — under the Federal Emergency Management Agency’s (FEMA) proposed Risk Rating 2.0 plan, according to an analysis by the grassroots insurance watchdog group FIRM (Fair Insurance Rates in Monroe).
FIRM and Monroe County government both issued separate press releases on Thursday informing residents of Risk Rating 2.0 and the likelihood of higher costs.
“Rate increases of this size will be devastating to the economies of coastal communities, like Monroe County, and the increases could force homeowners to drop coverage, an action that would then compel the lender to force place flood coverage or, even worse, lose their homes,” FIRM President Mel Montagne said.
A database analysis conducted by FIRM shows Monroe County policyholders could expect increases averaging $3,200 annually. FIRM’s rate analysis is thousands of dollars higher than FEMA’s projected increases and contradicts them sharply.
FEMA has said rates should increase about $240 annually for almost 93% of Monroe County policyholders.
“While FEMA contends Risk Rating 2.0 will provide more accurate and transparent flood insurance pricing, this untested proposal is actually a huge, unregulated rate increase causing millions of flood policy holders to face extremely significant premium increases,” Montagne said.
FIRM raised concerns that FEMA did not take into account important data such as property elevation certificates, which FIRM and the Monroe County government have been pushing for years. Having an elevation certificate could allow the owner to have a better rate under Risk Rating 2.0.
“To date, FEMA has not shared the underlying data and modeling they are using to calculate new premiums under Risk Rating 2.0,” Monroe County Legislative Affairs Director Lisa Tennyson said. “FIRM’s early findings demonstrate what we’ve suspected for a long time — that FEMA’s property-level data is not accurate and that policyholders will likely fair better in their premiums if they provide their insurance agents with accurate data in the form of an elevation certificate.”
FIRM developed its database using privacy-coded Monroe County residences both with and without elevation certificates. The database includes 48 single-family homes and condos, which are classified as commercial.
The properties were run through the new FEMA Risk Rating 2.0 software to calculate the new and significantly higher premium rates. After two years of delays, FEMA plans to implement Risk Rating 2.0 on Oct. 1 for new customers and April 1, 2022, for all flood policy renewals.
FEMA has said 92.9% of Monroe County properties, 87.6% of Florida properties and 84.1% of policyholders nationwide will see annual increases under the new program of $240 a year or less.
FEMA has offered very little transparency or explanation as to how the new flood insurance rate methodology will work, Montagne said.
The details of FEMA’s Risk Rating 2.0 are opaque, limited and confusing, but implementation dates are already set, according to Montagne. He predicted that FEMA’s lack of transparency on how rates are calculated will create a massive outcry when implemented later this fall and early next year.
The new rating system will no longer use flood maps and zones or base flood elevations to determine a homeowner’s premium rate. It will use a series of models that could fundamentally change a property’s individual flood risk assessment and therefore its insurance premium, according to FIRM.
There will no longer be Preferred Risk Policies — those for properties in the so-called X zone — but existing PRP properties will be grandfathered in until they reach the full actuarial rate.
Data such as first floor elevation, replacement cost value, construction type, foundation type and more are determined by FEMA’s undisclosed internal data sets rather than elevation certificates, and FEMA has no guidelines for appealing the information that its tools have provided, according to FIRM.
FIRM has joined other concerned organizations like the Coalition for Sustainable Flood Insurance based in Louisiana in encouraging FEMA to delay the implementation of Risk Rating 2.0 until both methodology and rate structure effects are more thoroughly reviewed.
On Sept. 14, U.S. Congressman and Republican Whip Steve Scalise and Congressman Garret Graves, both of Louisiana, wrote a letter to FEMA Administrator Deanne Criswell requesting FEMA to delay the implementation of the new rating system. They pointed to Louisiana properties that would increase 600% to 1,000% under Risk Rating 2.0, according to FIRM.
“It would be devastating for FEMA to implement Risk Rating 2.0 and cause NFIP rates to skyrocket for some policyholders who play by the rules,” wrote Scalise. “We must continue working to implement long-term reforms to NFIP to ensure the program remains affordable and stable for the future.”
In the meantime, Montagne encourages Monroe County home and business owners to contact their insurance agents to determine the rate increases for their specific properties. He also suggested they have an elevation certificate and have flood insurance in place to help offset anticipated increases. Contacting members of Congress asking for their assistance in delaying implementation is also important, he said.
County government officials also raised concerns about FEMA not sharing or releasing individual property data.
“Monroe County has carefully monitored FEMA’s development and planned implementation of Risk Rating 2.0 since it was introduced several years ago,” Tennyson said. “The impacts are heavily skewed against coastal communities, and we will continue to be a part of the nationwide discussion and its effects on Monroe County policyholders. Protecting affordable flood insurance is the number one federal legislative priority for Monroe County and has been since the Biggert-Waters reform in 2012.”
FEMA’s new methodology for determining NFIP policy premiums incorporates variables to reflect a property’s individual flood risk, including the frequency and types of flooding, such as storm surge, coastal erosion and heavy rainfall — and the distance to a water source along with property characteristics, such as elevation and the cost to rebuild. Including a property’s replacement cost value in the new methodology was a major component in the new rates, Tennyson said.
Under federal statutes, NFIP annual increases are capped at 18% for primary residential properties and 25% for second homes and commercial properties. The Risk Rating 2.0 increases cannot exceed the rate caps. However, Tennyson stresses that the current annual rate caps are already unaffordable for most Monroe County homeowners.
“Nationwide, the average policy is about $800. In the Florida Keys, people are paying $3,000, $4,000, $5,000 for their policies. Annual rate increases of 18% are unsustainable,” she said. “Monroe County’s main focus will continue to be on lowering the rate caps to under 10%.”
NFIP is a federal program that must be renewed by Congress every five years. Monroe County works with Monroe County’s federal delegation to advocate for a financially sustainable NFIP that provides affordable flood insurance for its constituents. With a maximum benefit of $250,000, the beneficiaries of this program are working and middle-income homeowners and commercial property owners in coastal communities, according to county officials. Most multimillion-dollar homes in coastal areas are privately insured.
Risk Rating 2.0 has been done entirely at the agency level, without the input or approval of Congress. U.S. Sen. Marco Rubio, R-Fla., and U.S. Congressman Carlos Gimenez, R-Miami, support Monroe County’s efforts to reduce the impacts of premium increases, but there has been little overall congressional action to date, according to the county press release.
Due to Monroe County’s participation in the Community Rating System, policyholders in unincorporated Monroe County will continue to receive a 35% discount even after Risk Rating 2.0 goes into effect, according to county officials.