Flood insurance costs drop for many in Philadelphia
Flood insurance is a cost of living in the Whitfield neighborhood, where catastrophic flooding has repeatedly devastated homes and forced residents to be evacuated by boat. But many Eastwick residents are expected to see savings thanks to a new pricing system that the National Flood Insurance Program (NFIP) is rolling out in full on Friday.
The new system, known as Risk Rating 2.0, adjusts insurance premiums to more accurately reflect the actual flood risk for a given property, as well as the cost of rebuilding after a flood. This means that many smaller, older homes and those less likely to be damaged by flooding will see their premiums go down, while many more expensive and riskier homes will see their costs go up.
Data from the Federal Emergency Management Agency (FEMA) shows that in Philadelphia, premiums for more than half of all National Flood Insurance Program policies on single-family homes will stay the same or increase until to $120 in the first year – a rate comparable to the annual rate increases under the old system. Premiums on 45% of single-family home policies in Philly will see immediate decreases. This is enormous, since under the old system, the premiums have only increased. Only 3% of policies will increase more than $120 in the first year, a lower percentage than all policies statewide.
The impact of the change is clearest in Eastwick, which contains the most NFIP policies of any postcode in the city and will see the most dramatic savings. According to FEMA data, more than 80% of policyholders of single-family homes in ZIP Code 19153 will see their flood insurance rates drop in the first year of the new system. Additionally, more than 42% of Eastwick single-family policyholders are expected to see their rates drop significantly – by at least $1,200 in the first year.
Some owners may have already secured these savings, as the 2.0 risk rating came into effect for new policies in October, and policyholders eligible for renewals since then have been able to take advantage of premium reductions. The change takes effect for the rest of the existing policies when they renew after April 1.
Making flood insurance fair
FEMA, which administers the national flood insurance program, says the new rating system is fairer than the old one.
“We seek to ensure 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 value homes have paid more than their share of the risk, while those with higher value homes have paid less. This is because the old pricing system was based on large areas of flood risk and a property’s elevation, and did not take reconstruction costs into account. The same flood that strikes two houses will cause more costly damage to the larger and more expensive one – and result in a larger insurance claim.
“[A] lower replacement cost value means we are likely to pay less if lost than if the structure has a higher replacement cost value, newer structure, newer finishes, possibly more finishes dear,” Sobota said.
Risk Rating 2.0 also incorporates other new variables into its premium pricing, such as flood frequency, multiple flood types, and a home’s distance from a water source.
Saleem Chapman, director of resilience for the city of Philadelphia, is a fan of the price overhaul.
“It builds fairness in the system,” he said. “You’re leveling it up and you’re actually creating a financial disincentive for building, sort of, in high-risk areas.”
The average home value in the Eastwick ZIP code is $229,000, below the national average of $331,000 and a hair above the city’s average of $227,000, according to real estate website Zillow. .
At first, few policyholders in Philadelphia will see significant premium increases under the new system. But the zip code where 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 downtown 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 increase by more than $120 in the first year – some of them by much more.
FEMA’s overhaul of flood insurance pricing could be a win not only for economic equity, but also for racial equity (it’s hard to know for sure, as officials say FEMA does not follow the course of the insured). FEMA admits that lower-value homes have historically subsidized flood insurance for more expensive homes. But an NPR analysis of flood risk data from the nonprofit First Street Foundation last year found that the families who got the best flood insurance deals lived in communities that are not only richer, but also whiter. Center City West is predominantly white, while Eastwick, where many premiums will drop below the 2.0 risk rating, is predominantly black.
“When we think of our communities most vulnerable to flooding and a community that has continually found itself resisting and persisting against environmental injustice, that’s a positive development,” Chapman said.