Flood Insurance Premiums Drop

Against the flow. It isn’t often that building owners get good news when it comes to their property insurance premiums. But thanks to the Federal Emergency Management Agency (FEMA), they may finally be catching a break when it comes to flood insurance.

Redrawing the map. Owners whose properties are located in high-flood-risk areas are required by mortgage lenders to have flood insurance. But since standard property insurance policies don’t provide it, owners — including co-ops and condos — must rely on private insurers, whose premiums are determined in part by FEMA’s Flood Insurance Rate Map. Since the 1970s, rates have been based on a property’s elevation. But FEMA has implemented a new methodology, Risk Rating 2.0, that uses advanced technology and additional data to better reflect a property’s flood risk. “It factors in flood frequency, storm surges, coastal erosion and proximity to different types of bodies of water,” says Eric Eggert, a business development specialist at the insurance company Mackoul Risk Solutions. “It provides a much more detailed and accurate picture.” 

Plummeting premiums. FEMA’s new rates went into effect in April 2022 for all flood insurance policy renewals. “So far, the results are almost too good to be true,” says Thomas Thibodeaux, the chief financial officer at New Bedford Management. One client, the Conrad Condominium, located one block inland from the Harlem River at 342 E. 110th St., saw its premiums drop from nearly $40,000 a year to $6,000 when it renewed its flood insurance last December. “It was a shock and a relief,” says Thibodeaux, who has seen similar decreases at other properties and hasn’t had premiums go up at any of New Bedford’s co-op and condo clients, which are mostly in Manhattan and Brooklyn.

For his part, Eggert was pleasantly surprised when Mackoul renewed its office building insurance after moving from Island Park, N.Y., to Long Beach, which is right on the Atlantic. “Thanks to FEMA’s new rates, our premiums were cut in half, which didn’t make much sense to us,” he says. “But then we dug deeper and found the reason was that Long Beach was putting in new drainage systems and taking other flood mitigation measures.”

More good news. As of April 2023, FEMA’s new rates apply to all buildings, whether owners are getting new flood insurance or renewing their previous policies. “Your carrier will automatically adjust your premiums, so there’s nothing you need to do,” Eggert says. Still, if there’s no change in your premiums, it’s a good idea to have your managing agent speak to your insurance broker to make sure nothing has fallen through the cracks. 

For boards that do reap unexpected windfalls, Thibodeaux recommends putting the savings into the reserves for future capital projects. “Also, ratings could reset again, and your flood insurance premiums might go up,” he says. “You don’t want to look a gift horse in the mouth, but you do want to use the money wisely.”