New flood insurance rules: What Long Islanders need to know

Long Island homeowners whose flood insurance policies renew on or after April 1 will be subject to the National Flood Insurance Program’s new system for setting prices. Three in four local policyholders are expected to see their prices rise, while a smaller contingent are set to qualify for big discounts.  

The Congressional Research Service has called Risk Rating 2.0 “the biggest change to the way the NFIP calculates flood insurance premiums” since the program’s inception in 1968. Local flood insurance experts expect the changes to be a mixed bag for Long Islanders, with South Shore homeowners facing the biggest hikes. The change took effect for homeowners buying a new policy in October. 

There are roughly 77,000 federal flood insurance policies in effect on Long Island, including those for commercial properties, FEMA data shows.

“You’re going to have a few people who are going to be relatively happy because they may see their rating go down, but then you are going to have a lot of really upset people,” said David Clausen, CEO of Coastal Insurance Solutions in Rocky Point.

Here’s what you need to know about Risk Rating 2.0:

What’s changing? Risk Rating 2.0 aims to better match the amount people pay in premiums to their properties’ risk for flood damage. Flood zones, which create tiers of risk for geographic areas that ignore the characteristics of individual homes, will no longer be used to set prices. Instead, the National Flood Insurance Program has developed a model to determine the risk of flooding for an individual property.

The new prices will take into account factors such as distance to bodies of water, flood frequency, elevation and the cost to rebuild a home. High-priced homes that are more expensive to rebuild face higher rates. The new system also considers risk from other types of floods beyond coastal surges, such as excessive rainfall. Flood zones are still used to determine whether homeowners are required to buy flood insurance to qualify for federally backed mortgages.

How will it affect my insurance bill? The majority of Long Islanders with federal flood policies will pay more. In Nassau County, 74.5% of homeowners covered under the federal program will see their premiums increase while 25.5% will get discounts. In Suffolk, the split is 76.1% paying more and 23.9% paying less, according to data from the Federal Emergency Management Agency. Discounts for homes built before flood maps were created, called pre-FIRM discounts, will still apply, the agency said. 

As consumers receive their new rates, it’s important they and their insurance agents check the data FEMA has about their houses to ensure it’s accurate, said Aaron Stein, president of insurance agency Norton & Siegel in Babylon. 

If there’s “information on the wrong house or wrong policy or if anybody thinks their rate went up too much, there could definitely be mistakes,” Stein said. “We’ve seen that.” 

How much more might I have to pay?  The hikes won’t take effect all at once for some homeowners. There are statutory caps protecting those facing extreme increases — in some cases five times what they pay now. For people insuring their primary residence, federal flood insurance premiums cannot rise by more than 18% a year. Homeowners that get slapped with a rate that’s double or triple what they paid under the old system can expect to see prices rise by 18% year after year. FEMA said that after 10 years, there will still be 10% of policyholders nationwide that have not reached the price that reflects their home’s true risk.

In November, the federal agency told Newsday the average of new quotes on Long Island is $1,600 a year, and more than half of policyholders will pay less than $1,000. The 5% of homes deemed the highest risk for costly claims will pay $5,000 or more, a spokeswoman said at the time. The agency declined to provide a full breakdown of what Long Islanders will pay under the new system. The maximum premium allowed is $12,125.

FEMA noted in January that under the old system, no homeowners would have seen their rates decrease this year and policyholders would have seen prices go up regardless of their risk level. By changing the way it calculates risk, it was able to lower prices for about one-quarter of Long Island  homeowners.

Which communities will see the biggest changes? FEMA released data last year that shows the percentage of policies increasing and decreasing in each ZIP code. Newsday’s analysis of the data found increases were most prevalent on the South Shore, with about three-quarters of homeowners in areas stretching from Lawrence to Hampton Bays facing increases. About 8 in 10 homeowners on the Island will see somewhere between a $240 decrease and a $240 increase in their annual premium. Massapequa, Long Beach, Babylon, Lindenhurst and Amityville had the largest numbers of policyholders who would see their insurance bills rise by at least $240 a year under Risk Rating 2.0.

Long Beach has the largest number of homes with flood policies on the Island, at 5,217. About one-third of policyholders there will see a discount of at least $120 a year under the new system.  You can search how premiums are changing in your ZIP code in the table below.  

Why is FEMA making these changes? The federal agency says Risk Rating 2.0 is an important part of making federally backed flood insurance financially sustainable. Devastating storms, such as Superstorm Sandy and Hurricane Katrina, have led to massive claims. The program owed the U.S. Treasury $20.5 billion as of last year after borrowing to pay claims. Federal officials say higher prices will be levied on homes that are more likely to flood and more costly to repair, making the program fairer. On March 11, President Joe Biden signed legislation reauthorizing the NFIP until Sept. 30, when Congress will have to reauthorize it again.

How will this affect me if I’m planning to buy a home on Long Island? The 18% cap only applies to existing policyholders, so homebuyers could face a higher premium than the previous homeowner was paying. For instance, a homeowner with a $1,000 premium that was raised to  $1,800 under Risk Rating 2.0 would only face an increase of 18%, or $180, upon their next renewal. But a new owner could immediately face an $1,800 premium.

Homebuyers in that situation have options, FEMA said. For instance, sellers can still transfer discounts to the new owner “by assigning their flood insurance policy when their property changes ownership,” the agency said. A new owner can also access the gradual increases by providing FEMA with information about the prior policy, including the policy number.  If there is not an existing policy, new policyholders must pay the full risk rate.   

What effect will climate change have on the future of flood risk on Long Island? Several different issues pose a risk to Long Island, said Kevin Reed, an associate professor at Stony Brook University’s School of Marine and Atmospheric Sciences, whose research focuses on extreme weather events and climate change.

“There are numerous sources of potential flood damage in the future,” Reed said. “[The] sea level is rising. Storm surge will become higher in the strongest storms and storms are producing more rainfall in a warming climate.”

Reed has co-authored research in the past few years that aims to measure how climate change has contributed to higher rainfall totals in individual storms, such as Hurricane Florence, which hit the Carolinas in 2018. He hopes to expand that focus to see how the area or depth of flooding is affected by climate change, so policymakers could better plan for future storms.

“We're trying to create a framework that can start to ... provide a glimpse of what Sandy or Irene 2.0 might look like under different warming levels in the future, to allow the government and individual communities to develop resiliency plans,” Reed said.

By Jonathan LaMantia

jonathan.lamantia@newsday.com@jonlamantia

Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.