Beginning on Friday, April 1, thousands of Alabama residents federal flood insurance rates increased. They will be paying more for flood insurance.  Back in Oct., the Federal Emergency Management Agency (FEMA) announced that it was changing the way flood insurance is priced.

FEMA says that its new Risk Rating 2.0 will transform the National Flood Insurance Program (NFIP) by bringing more equitable pricing to flood insurance. An independent team of insurance analysts found that FEMA’s new rules will cost 79% of Alabama residents as much as $100 a month.

Under the new rules, 79% of policyholders will see a price increase, while 21% of policyholders will see a price decrease. This affects 52,648 policyholders in the state. 

Under Risk Rating 2.0, the cost of flood insurance will be primarily based on the cost of replacing a home and each property's unique flood risk.

Risk Rating 2.0 uses five main variables to determine a property’s flood risk:

  • Historical flood frequency

  • Flood type: river, rainfall, coastal surge, coastal erosion

  • Distance to water source

  • Property characteristics: elevation, soil, etc.

  • Cost to rebuild

Risk Rating 2.0 significantly changed what millions of Americans pay for their flood insurance. More than 5 million people are currently insured through the NFIP. Nearly 80% of those policyholders will immediately pay $10-$100 more a month. Around 1.2 million policyholders will immediately see a rate decrease of between $10 and $100 a month.

The analysts found that for the most part, property owners in lower-value homes and neighborhoods will be paying less, while property owners in higher-value homes and neighborhoods will be paying more

The NFIP is a federal program. There has been recent growth in private insurers getting in the flood insurance business. Most private homeowners’ insurance does not include flood coverage as that has to be purchased separately. The NFIP has paid $1,154,473,233 in claims in Alabama.

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