Extreme weather events in the United States are making it difficult to insure homes in certain areas. In some situations, it’s preventing homeowners from paying for the insurance protection they so desperately need; with flood risk, that’s becoming an increasing issue.
What is “floodplain mapping” and how does it impact your insurance rates? Let’s explore how the increase in flood frequency and severity may be affecting the cost of your insurance as well as your home’s overall insurability.
What is floodplain mapping?
Floods can occur virtually anywhere in the United States. Even if your home isn’t a waterfront property or is located within proximity of a body of water, heavy rains, construction projects, and poor drainage can put your property at risk of damage due to flood.
A tool that communities can use to assess their risk of flooding is a flood map. The Federal Emergency Management Agency (FEMA) maintains and consistently updates data through risk assessments and existing floodplain zones or flood maps.
Floodplain maps don’t coincide with property limits and city limits but rather are grouped by risk areas, and you can use flood maps to determine the relationship between your property and existing areas with a high risk of flooding. There is no “no-risk” areas, as all regions can experience flooding.
How does floodplain mapping influence my insurance rates?
Flood maps may actually be used by mortgage lenders when gauging insurance requirements. As mortgage lenders will want to protect their investments, they may increase or decrease coverage requirements based on the level of risk.
More coverage means higher premiums. For homeowners located in these higher-risk areas, mortgage lenders may require them to carry higher levels of coverage, thereby costing them more in premiums.
Data regarding flood risk can also influence the decision of underwriters as to whether to increase insurance premiums for a certain area or not. For example, in early 2023 alone, premiums in Texas rose by up to 16% for homeowners due to the risk of flooding in Austin being higher than initially anticipated.
Insurance companies will raise rates based on the probability of risk as demonstrated by flood maps to offset the potential for a loss. Floods can be especially devastating to insurance companies as they tend to impact homes across a larger area than individual events, like residential fires or break-ins.
In summary? If you live in an area at a higher risk of flooding, you’re likely to pay more for your home insurance. Worse, some insurance providers are removing certain coverages for areas more exposed to reduce the risk for themselves.
Could my home’s flood risk impact its insurability?
Yes. If your insurance rates rise as a result of an increase in your flood risk, you could find it too expensive to continue paying for certain coverages. Some insurers are also pulling back from certain areas or entire states altogether, meaning homeowners will need to look elsewhere and potentially purchase more expensive policies to maintain coverage on their homes.
Back in 2023, State Farm, which is one of the biggest insurance providers in the United States, announced that it would no longer be selling new home insurance policies in California. This decision was based on, to quote, “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.” Following suit, Farmers Insurance discontinued offering home insurance in the state of Florida alongside a dozen other providers who had long-since left.
For many insurance companies, the more sensible thing is simply to withdraw from high-risk markets. Unfortunately, what that ends up meaning is that vulnerable populations may be disproportionately impacted with far higher rates than they can manage, forcing them to forgo critical coverage.
What can we do?
It’s a tough situation, unfortunately. Homeowners at the highest risk of flooding may find themselves in difficult situations where purchasing insurance for flooding is too expensive, or they may find it difficult to obtain insurance altogether due to numerous providers pulling out of offering coverage in their area.
Some states are offering special “state insurance.” California has its own program called the FAIR Plan,m which is designed to insure properties located in areas that are at higher risk and may not be eligible for insurance otherwise. Some states are also allowing insurance companies to take climate change into account when determining insurance premiums, but this can cause even higher insurance rates.
Despite increases in insurance rates, we advise avoiding missing payments as much as possible. Being cancelled due to non-payment can raise your rates significantly the next time you go to get insured again, sometimes even vaulting you into the high-risk market where you could be paying two or three times as much as you were previously. If you are worried about missing an upcoming payment, discuss options with your provider or agent.
You can combat insurance price increases by investing in mitigation devices. Some insurance companies will discount your insurance if you purchase water alarms or monitoring devices, backup valves, and similar devices. Ask your agent about which devices qualify and if your provider offers discounted insurance for their installation.
Finally, work with an insurance agent! An agent can help find you more affordable insurance, regardless of where you live. AHI Group is licensed in numerous states and can help find you the coverage you need.
