While FEMA and insurance entities have resources to help assess flood risk, it’s important to know that changes in climate risk resulting in damaging floods are occurring faster than private programs can keep up. Often, this can mean a reliance on three- to 10-year-old data that lacks a forward-focused perspective on loss event trends and disruptive shifts.
For example, Buncombe County in North Carolina is considered very low risk for flooding according to FEMA maps. Accordingly, less than 1 percent of homes carried NFIP flood insurance. However, the county experienced catastrophic flooding during Hurricane Helene.
Homeowners should research recent and forecasted climate-related events relevant to their own property in order to make flood insurance purchase decisions. Having a flood policy in place can help provide peace of mind and crucial financial protection if the worst happens.
FEMA Risk Rating 2.0
As of April 2023, FEMA has fully rolled out the Risk Rating 2.0 system, the agency’s latest approach to setting flood insurance rates that more accurately capture flood risk. Under Risk Rating 2.0, FEMA considers new data sets, third-party software, home value, rebuild costs, flood history, flood type and other factors that were not previously part of its rate-setting methodology.
The goal of the Risk Rating 2.0 system is to have NFIP flood insurance costs increase each year so that the eventual cost of flood insurance matches the new, more accurate risk-based cost of insurance. However, increases are capped at 18 percent per year. If you choose to purchase a flood insurance policy through the NFIP, you can generally expect your premium to increase upon renewal.
Home age and construction
Older homes built with outdated construction materials and techniques may be more vulnerable to damage caused by flooding and could incur additional expenses — such as custom lumber milling — to repair. Some modern building techniques may help mitigate flood damage, including foundation openings known as flood vents that allow water to drain out more quickly while causing less structural damage.
Type of coverage
There are only two coverage options on an NFIP flood insurance policy: building coverage and contents coverage. Choosing a policy with no contents coverage will likely be cheaper than choosing a policy that includes both coverage types, but this decision could leave you financially vulnerable if a flood destroys your home and everything in it. You may be able to add more coverage types with a private provider, like additional living expenses and scheduled property coverage to insure items like artwork. It will likely raise the cost of your policy, though.
Coverage limit and deductible level
Generally, the more coverage you purchase, the more you will pay for a flood insurance policy. Your deductible, which is the amount of money you will pay out of pocket if you file a claim, also impacts your premium. Typically, the higher your deductible, the lower your premium will be. Flood insurance provided by NFIP has deductibles from $1,000 to $10,000.
With a higher deductible, you assume a higher amount of financial responsibility in the event of a claim — meaning you would pay more out of pocket for a covered loss — thus reducing the financial burden of the insurance provider.
Policy type
Depending on your home’s location, you may qualify for an NFIP Preferred Risk Policy (PRP). PRP policies offer flood coverage for a reduced cost if your home is located in lower-risk flood areas. Standard policies are often the only option for homes located in high-risk flood areas.
Insurance company
Historically, flood insurance was only offered by the NFIP. Although various insurance companies were able to facilitate the purchase of NFIP policies, the rates were standardized regardless of what company you purchased coverage from. However, within the last several years, private insurance companies have begun to sell and underwrite their own policies.
Nearly 80 private insurers write flood insurance and account for nearly a third of total premiums written for U.S. flood insurance, according to homeowners insurance quotes.