Some homeowners may have already gotten these savings, as Risk Rating 2.0 went into effect for new policies in October, and policyholders eligible for renewals since then have been able to take advantage of premium decreases. The change goes into effect for the rest of existing policies when they renew after April 1.
Making flood insurance fair
FEMA, which manages the National Flood Insurance Program, says the new pricing system is more equitable than the old one.
“We are looking to make sure that all customers get the lowest premium, the fairest premium that would apply to them,” said Rich Sobota, senior insurance specialist at FEMA.
The agency admits that historically, policyholders with lower-valued homes paid more than their share of the risk, while those with higher-valued homes paid less. That’s because the old pricing system was based on broad zones of flood risk and a property’s elevation, and did not consider costs to rebuild. The same flood that hits two homes will cause pricier damage to the larger, more expensive one — and result in a bigger insurance claim.
“[A] lower replacement cost value means that we are likely to pay less if there is a loss than if the structure has a higher replacement cost value, newer structure, newer finishes, perhaps more expensive finishes,” Sobota said.
Risk Rating 2.0 incorporates other new variables into its premium pricing as well, like flood frequency, multiple flood types, and a home’s distance to a water source.
Saleem Chapman, the city of Philadelphia’s chief resilience officer, is a fan of the pricing revamp.
“This is building more equity into the system,” he said. “You are leveling it out and you actually are creating a financial disincentive for building in, sort of, high-risk areas.”
The average home value in Eastwick’s ZIP code is $229,000, lower than the nationwide average of $331,000 and a hair above the citywide average of $227,000, according to the real estate website Zillow.
Initially, few Philly policyholders will see big premium hikes under the new system. But the ZIP code where the most homeowners will see increases of more than $120 in the first year is 19103, which covers Logan Square, Rittenhouse Square and other areas of Center City West between Love Park and the Schuylkill River. The average home price there is $488,000 — more than double that of Eastwick. While most policies in 19103 will remain relatively stable, premiums for 14 policies there will go up in excess of $120 the first year — some of them by much more.
FEMA’s flood insurance pricing revamp could be a win for not just economic equity, but also racial equity (it’s hard to know for sure, as officials say FEMA does not track the race of policyholders). FEMA admits that lower-valued homes have historically subsidized the flood insurance of pricier homes. But an NPR analysis of flood risk data from the nonprofit First Street Foundation last year found that families who got the best deals on flood insurance lived in communities that are not only richer, but also whiter. Center City West is majority-white, while Eastwick, where many premiums will decrease under Risk Rating 2.0, is majority-Black.
“When we think about our most flood-vulnerable communities, and a community that has continually found itself resisting and persisting against environmental injustice, that’s a positive development,” Chapman said.
