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The Great Lakes region is blessed with an abundance of water. But water quality, affordability, and aging water infrastructure are vulnerabilities that have been ignored for far too long. In this series, members of the Great Lakes News Collaborative, Michigan Public, Bridge Michigan, Great Lakes Now, The Narwhal, and Circle of Blue, explore what it might take to preserve and protect this precious resource. This independent journalism is supported by the Charles Stewart Mott Foundation.

Lower rates: New flood risk assessment will reduce insurance rates in the Great Lakes region

Flooding streets in South Haven, Michigan.
Great Lakes Now Episode 1016
Flooding streets in South Haven, Michigan.

Approximately 85,000 homeowners in the Great Lakes region will see rate reductions for the first time because of the National Flood Insurance Program’s new risk rating system, experts say.

The flood insurance program is managed by the Federal Emergency Management Agency. It provides coverage to property owners, renters and businesses to help them recover from floods faster.

The new system, Risk Rating 2.0, was created to address inequities in flood insurance pricing in the old system, which was last updated in the ‘70s, said David Maurstad, the deputy associate administrator for federal insurance and mitigation at the Federal Emergency Management Agency.

The new system was designed to reflect a property’s flood risk more accurately by basing risk assessment off the individual structure’s exposure to flooding instead of broad zones and flood elevations, said Maurstad who is also the senior executive of the National Flood Insurance Program.

“We couldn’t continue to ignore our policyholders who have been unjustly subsidizing other policyholders,” he said. “Specifically, policyholders with more value, or lower risk, homes would pay more than they should while policyholders with higher value, or higher risk, homes were paying less than they should,” he said.

Houses on the Michigan shoreline.
Great Lakes Now Episode 1020
Houses on the Michigan shoreline.

The affordability issue with flood insurance goes back to the foundation of the program in 1968, Maurstad said. Risk Rating 2.0 is part of the Federal Emergency Management Agency’s plan to solve the affordability problem along with policy recommendations, mitigation and searching for more ways to lessen the financial burden.

The new rating system began applying to new policies in October 2021. Policies eligible for renewal can now take advantage of immediate premium decreases if they are eligible, according to the Federal Emergency Management Agency.

All remaining policies will be assessed with the new system from April 1, 2022, onward.

In Michigan, 54% of policyholders will receive an immediate decrease in rates because of Risk Rating 2.0, according to the Federal Emergency Management Agency.

In Illinois, Indiana, Minnesota, New York, Ohio, Pennsylvania and Wisconsin, over half of the policyholders in each state will receive an increase in policy rates, the majority of which will range from $0 to $10 per month.

But Maurstad said that’s a smaller percentage of increases than years prior and most increases will remain about the same amount as what would be charged under the old system. Risk Rating 2.0 will stop increases when they reach full-risk rates, unlike the old system which would continue increasing rates regardless.

“Under the old methodology, 100% of policyholders in these states would receive an increase when their policies renewed,” Maurstad said. “So, more attention needs to be paid to the 85,000 single-family homeowners and the 127,412 policyholders in these states that, for the first time, will see a reduction in their rates.”

The national average for yearly policy premium increases with the old system was $8 per month, according to the Federal Emergency Management Agency.

Overall, every Great Lakes state will have a larger percentage of residents receiving immediate rate decreases than the national average of 23%.

A delay in implementing Risk Rating 2.0 would have resulted in $91 million in overpaid premiums every year it was delayed, Maurstad said.

But these changes don’t get to the heart of Great Lakes flooding issues, according to some residents.

Ron Watson, vice president of the Great Lakes Coalition, said the fairer pricing and more accurate risk assessments that come with the new system are great, but there are still issues specific to the Great Lakes he would like to see addressed – specifically erosion and financial assistance for Great Lakes-region residents.

The coalition is a non-profit dedicated to preserving the Great Lakes’ shorelines, and its members are Great Lakes lakefront property owners, primarily along the shore of Lake Michigan. These lakefront owners consistently struggle to get financial support from flood insurance because it doesn’t cover erosion, which is where a lot of their problems come from, Watson said.

“(Risk Rating 2.0) has got some great features,” he said. “It doesn’t say much about specific Lake Michigan and Lake Huron flooding issues. It talks a little bit about coastal issues. I think coastal often means the ocean. They seem to worry more about hurricanes on the East Coast than they worry about large storms on Lake Michigan.”

A stormy Lake Superior sends waves crashing against Duluth's shoreline.
Great Lakes Now
Episode 1026
A stormy Lake Superior sends waves crashing against Duluth's shoreline.

Watson said he would also like to see mitigation efforts better implemented into the price reduction.

Policyholders may be able to reduce flood insurance rates through mitigation efforts like elevating a building or installing proper flood openings in a crawl space because it can help reduce flood damage.

But more importantly, mitigation makes the property more resilient, which means less disaster and suffering for the people that live there, Maurstad said.

Watson said his mitigation recommendation is to always follow the building codes and if you have the space to build further back and higher up from the shoreline, do it.

“If you’re building something that you’re worried about flooding, you must build it at least to cover the highest water level projection plus any storm surge or wave action,” he said.

For more information on the National Flood Insurance Program and Risk Rating 2.0, visit the Federal Emergency Management Agency’s website.

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