During the pandemic-fueled Great Migration of people moving from coastal cities to warmer and more affordable states, Florida and Texas came out big winners. But while populations are booming in these states, more homeowners there than any others are seeing their insurance premiums soar.
Florida and Texas were prime destinations for new homeowners in 2021. They were the two most popular states people wanted to move to, according to a survey by national relocating company Move.org, and several Floridian and Texan cities are topping the charts for population and economic growth this year.
But homeowners in these states may be in for a rude surprise soon, as their shared flood-prone geography is pushing insurers to raise their prices fast.
Nearly 3 million homeowners across the U.S. will see their flood-insurance premiums rise this month, according to a new report by online real estate firm Redfin. And most of these homeowners are located in parts of the country that are particularly at risk of flooding and storm surge.
The Federal Emergency Management Agency (FEMA) is revising how it evaluates flood risks, and flood-insurance premiums are beginning to reflect that. In both Florida and Texas, nearly 90% of flood-insurance policyholders are seeing their premiums rise, Redfin analysts found, well above the national average of 81%. Other states prone to flooding, including Mississippi, Louisiana, and Alabama, are also seeing premiums rise for more people than the national average.
FEMA’s new methodology to evaluate flood risks takes several new factors into account, including land elevation, the home’s foundations, and how far it is from the water.
The hikes are starting out relatively small—nearly 90% of policyholders seeing increases will be saddled by less than $120 more a year—but are certain to increase for two reasons.
First, most premium increases are capped at 18% each year, meaning that most policyholders will see a number of hikes for the next few years. FEMA has estimated that it could take a decade or more of yearly premium increases for most properties to reach their “full risk rate.”
Second, insurance providers are feeling a need to raise premiums as the risk of flood damage to homes continues to rise in many parts of the country.
FEMA has been working on a revised flood-insurance methodology since last October, citing the greater risk posed by worsening weather patterns fueled by climate change and the more serious instances of flooding in recent years.
Lawmakers and senators from coastal states at the time expressed concern over a potential “actuarial disaster,” given the complexity of the proposed changes and how higher insurance rates would affect homeowners in their constituencies.
“People are going to be shocked at the impact it’s going to have on insurance rates,” Sen. Marco Rubio (R-Fla.) said at the time.
A key goal of the revised flood-insurance plan was for it to become more equitable and easier to understand, ensuring that low-income and minority neighborhoods would not be saddled with disproportionately higher premiums than wealthier areas.
The revised methodology aims to be more equitable in distributing premiums by taking into account a wider number of factors, such as the value of an individual home and the cost it would take to rebuild it.
But in the early days of the new policy’s rollout, only 76% of policyholders in high-income areas are seeing premium hikes, according to the Redfin report, below the 81% national average. This number is roughly the same as the share of residents in low-income neighborhoods who are also experiencing premium increases.
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