If you have a flood insurance policy through the National Flood Insurance Program (NFIP), you are used to paying all sorts of fees in addition to your premium. FEMA is making sweeping changes to the NFIP, but they aren’t sweeping away fees and surcharges.
Fees for Flood Insurance
Each policy issued by the NFIP comes with a serious case of the fees.
The Federal Policy Fee is set by FEMA and can change from year to year. Since 2017, the Federal Policy Fee has been:
$50 – Standard Flood Policy (Primary Residence)
$250 – Commercial or Second Homes (including rental properties).
$25 – Preferred Risk Policies (Primary Residence)
$25 – Contents Only Policies (Primary Residence)
This fee will not change for 2021 with FEMA 2.0. However, I can’t make any promises about what may happen in 2022.
A Reserve Fund Assessment fee is charged on every policy. This is supposed to be a fund against future losses, but honestly, the NFIP already operates at a deficit just paying current losses – much less future losses. This fee was increased on April 1, 2020, to 18% of the policy premium. When FEMA 2.0 goes into effect on October 1, 2021 for new policies and April 1st for renewals, this fee will not change. But it could go up next year. My crystal ball is hazy.
Not to load on too many fees, FEMA also adds an HFIAA Surcharge to every policy just to change things up a bit. For a primary residence, the fee is $25. For every other policy, the charge is $250.00. This Flood Nerd doesn’t understand how charging two different amounts equals “Equity in Action”, the name of this new FEMA program, but since when does anything the government does make sense?
In a nutshell, the current fees that FEMA tacks onto policies won’t change. But, and this is a BIG BUT, fees aren’t figured into the statutory cap on policy premium increases.
How the Policy Premium Cap Works
Congress set a limit on how much FEMA can increase flood insurance policy premiums every year. By law, premiums can not go up more than 18% each year. But that doesn’t mean your total bill can’t go higher.
If you have one of those Preferred Risk Policies (PRP), you are on a “glide path” to increasing premiums each year. So, your current premium maybe $500 – and if it goes up 18% that’s a $90 increase. But now that $590 is subject to the Reserve Fund Assessment based on the new premium. Under the old policy, the fee was $90, but under the new premium, your fee will be $106.20.
How Many Homes Will Be Affected by Rate Increases?
Right now, the NFIP has issued 3.4 million single-family home policies. Most of these are PRP policies where the government is subsidizing a portion of the premium.
Of those 3.4 million policies, 1,708,427 are PRPs, and 993,192 are charged at “full-risk”. The remainder are either Grandfathered, newly mapped, Pre-FIRM, or high-risk coastal property policies.
Since Grandfathering is going away, those people will see their rates go up. And because maps are going away, the PRP policies will lose their subsidy and each year the premiums will go up until you reach full risk.
FEMA says some people will see a decrease in their rates and others will see an increase. But quick Flood Nerd math says about a third of policies is PRP, and PRP policies are going up so there’s a good chance your policy will be going up.
What Should You Do?
If you have a PRP policy, don’t be surprised to see your rates increase. But, don’t let that higher premium discourage you from maintaining coverage. Compared to a full-rate policy, you are probably getting a great deal – it just doesn’t feel that way when the bill goes up.
Make sure to pay your premium on time. If your PRP policy lapses once FEMA 2.0 goes into effect, you can’t get it back. You’ll be stuck with a full-risk policy.