Flood Insurance

The average cost of flood insurance is projected to increase by 120% in the South and 82% outside the South once full-risk prices are completely implemented.

Average cost of full-risk flood insurance (Risk Rating 2.0) by county

Single-family home policyholders in the National Flood Insurance Program

Source: FEMA. Notes: The full-risk cost of insurance is what policyholders will pay at their full actuarial rate under National Flood Insurance Program’s pricing approach (Risk Rating 2.0). Cost of insurance is defined as all premiums, fees, assessments and surcharges for a policy.

The National Flood Insurance Program (NFIP), run by FEMA, was established in 1968. All homes and businesses in flood-prone areas (as determined by FEMA) that have a government-backed mortgage are required to buy NFIP insurance. Other homes and businesses can purchase NFIP insurance on a voluntary basis, and 90% of all flood insurance in the U.S. is through NFIP.^[1]

In 2021, NFIP began raising policy rates to more accurately reflect each property’s flood risk. By law, NFIP rates cannot increase by more than 18% per year, so some policyholders are on a “glide path” to their full-risk cost of insurance. Once the new price structure is fully implemented, the average cost of insurance is projected to be $1,950 in Southern states — 20% higher than outside the South.

As flood insurance costs increase, many policyholders — including poorer families with heirs properties — are dropping their coverage, leaving them even more financially vulnerable.^[2] The number of NFIP policies in force has declined from 5.7 million in 2009 to 4.7 million in 2023. Louisiana has 52,000 fewer policies in force. And West Virginia has nearly 10% fewer policies. For property owners who are required to purchase insurance, rising flood insurance costs increase the cost of living and can make new property development less feasible. It can also drive home prices down, leaving homeowners with an asset worth less than the mortgage.^[3]

1. Knowles, S. G., & Kunreuther, H. C. (2014). Troubled Waters: The National Flood Insurance Program in Historical Perspective. Journal of Policy History, 26(3), 327–353. https://doi.org/10.1017/s0898030614000153

2. Bargeman, K. B. (2023). The Heirs’ Property Dilemma: How Stronger Federal Policies Can Help Narrow the Racial Wealth Gap. North Carolina Banking Institute. https://scholarship.law.unc.edu/cgi/viewcontent.cgi?article=1569&context=ncbi 

3. First Street Foundation. (2023, September 20). The 9th National Risk Assessment. https://report.firststreet.org/9th-National-Risk-Assessment-The-Insurance-Issue.pdf