We’ve long talked about FEMA’s Risk Rating 2.0, its many supporters and detractors, since its introduction in late 2021 – the shift to property-specific risk and rates meant many Floridians found their premiums on an upward glide path to parity. Now, five years later, a new report shows more than half of National Flood Insurance Program (NFIP) policies are currently paying full-risk rates (up from one-third in December 2022), and approximately 1.5 million policies (42%) remain subsidized by the federal government. But the subsidies are disproportionate: new insights from Neptune Flood Research Group show that the NFIP still carries about $2.6B in annual premium subsidies, with discounts concentrated between long-standing policyholders, non-primary residences, and higher-value properties.
The lion’s share of the remaining subsidies is going to second homes, rental properties and businesses, accounting for 28% of policies but a whopping 42% of subsidy dollars. The story on higher-value properties reads much the same: those with replacement costs over $1million make up 4% of policies, but at least 17% of the subsidies.
For Florida policyholders, the average gap between current premiums and the full-risk price tag is $2,474, which Neptune reports is 43% higher than the national average. Florida currently accounts for 47% of the subsidized book, a number which the report notes could jump to around 60% by 2034.
This situation is the result of the slow phase-in of new rates created by the annual cap on rate increases. Higher property value homes with higher premiums would, of course, be the last to reach parity due to the cap on rate increases. Flood-prone Florida, with the highest concentration of NFIP policies in the U.S. would, in turn, would be one of the last to find rate/risk equilibrium.
