Owning a home in Annapolis comes with risks. This is an area prone to flooding, which can cause extensive damage to houses no matter how well prepared they are. Whatever your views on the cause of climate change, the evidence shows that rising sea levels have led to a huge increase in flooding over the past half-century.
All of this is why flood insurance is so important when you own an Annapolis home. Flooding is not covered by regular homeowners insurance policies. You need to take out flood insurance specifically with the Federal Emergency Management Agency (FEMA).
For a long time, flood insurance premiums remained fairly stable. They were based on whether a home was in the so-called “100-year flood plain.” This refers to areas that would be flooded in the case of a flood that exceeds expectations – with a 1% chance of happening in any given year.
Now, FEMA has implemented a new risk rating system. Before, the system asked everyone to pay premiums that would cover the highest-risk homes. The new system asks homeowners in areas that have a higher risk of flooding to pay according to their risk level.
Why are flood insurance premiums rising?
The cost of flood insurance has been stable for decades. Why are these changes being made now all of a sudden?
The simple reality is that major floods are becoming increasingly common. Climate change has led to regular floods that would once have been exceedingly rare. FEMA is paying out more and more, and therefore needs to hike prices.
However, hiking prices for people in areas with a low risk of flooding would be seen as unfair, and so the premiums are going to reflect risk levels.
There is another reason price hikes are coming to homeowners in high-risk areas that has nothing to do with fairness. Quite simply, the government wants to encourage people in the most high-risk areas to move. This may seem drastic, but in some areas, homeownership will become impossible in the future.
How much will premiums rise?
The price rises are, of course, dependent on your area. The people hit hardest mostly live in Florida. These are individuals with beachfront mansions. In the past, their premiums have been subsidized by everyone, even those with exponentially lower incomes. The new premiums will affect the wealthiest homeowners most of all.
In Maryland, you should not have too much cause for concern. The statistics show that only 39% of homes will see any increase, with only 1% seeing an increase of over $20 a month. In other words, you may have to pay more for flood insurance for your Annapolis home, but it is very unlikely to exceed $240 a year.
What about the value of my home?
It is in home values that Annapolis residents may face the biggest concerns. Annapolis is no Florida, and there is no cause for panic regarding flooding. However, the evidence shows that flooding is becoming increasingly more common in Annapolis. Furthermore, one of the main reasons for the price hikes according to risk level is to discourage homeownership in high-risk areas.
Simply put, your home may decrease in value as a direct impact of FEMA’s new system. As is true of the rest of the United States, home prices have been skyrocketing in Annapolis over the past year. Climate change itself would probably not have impacted this for a long time. FEMA’s new system does, however, place this reality at the forefront of a buyer’s mind when choosing where to live.
There is no need to panic and sell your home now that the prices are so high. If you intend to continue living in Annapolis and know that your home can withstand flooding fairly well, you probably have no intention of moving.
It is, however, a good idea to have a look at the new risk rating and the factors that have influenced it.
What other factors affect my premiums?
It is not only your location that will affect your new risk rating. FEMA also looks at your claim history and the claim history of the homes around you. They look at exactly how close you are to the flooding source.
In other words, if your home has never flooded during major storms and you are far from a body of water, your prices are likely to decrease rather than increase.
How much will premiums decrease?
If you are lucky enough to see your premiums drop, what can you expect? This really depends on your risk rating. While you are likely to see a drop of $10 or more per month, there are some homes that will see a massive decrease of more than $100 a month!
With FEMA’s big changes in mind, you may well be asking what comes next. Climate change is not going away, and areas that are hardest hit will continue to see the consequences in insurance premiums. It is not just FEMA that will hike their premiums, but private insurance companies may do the same in areas with extreme heat.
That said, for the foreseeable future, no more major changes are on their way. The new FEMA policy has been on the cards for the past two years and is only being implemented now. Any further changes will be announced well in advance.
The new risk rating system designed by FEMA makes premiums fairer. Unfortunately, this will impact people living in the highest risk areas, both in terms of their monthly payments and the value of their homes.