Flood insurance costs are set to rise in the near future - here's why

Yahoo Finance's Julie Hyman breaks down flood insurance costs, and why prices may be rising in the future.

Video Transcript

- I'm watching flood insurance, which is not something that we always talk about here. But we do talk about climate a decent amount. And as of October 1st, flood insurance is going to start to go up for a lot of Americans. There's a program called the National Flood Insurance Program and there's a story in "The New York Times" today that outlines how the subsidies that that program provides are going to start to change.

Right now, the subsidies for flood insurance that are offered to American homeowners are based on whether homes are in flood plains. They're based to some degree on how homes do during severe storms. And effectively, what that has meant is that coastal homes, some of them quite expensive, have seen their flood insurance subsidized, while some inland homes have not gotten the same kind of advantages in those subsidies. So this is aimed at trying to better adjust for the specific circumstances of a home and how at risk it is for flooding. This is going to mean for many folks, that flood insurance is going higher. For a few people it's also going to mean that their flood insurance is going lower. The average annual premium under this program has been $739.

So what all of this effectively means, though, is Brian, a real world example of how regulators are attempting to accurately price out climate risk. And I think we are going to see more and more of this type of action. For a long time, coastal homeowners, not only are they getting these flood insurance subsidies, but in many of those coastal towns, there's a lot of money spent on trying to mitigate flood risk. Dredging and putting sand in certain places, for example. And you have to wonder if that is going to start to change and people are instead going to be discouraged from purchasing those homes that are highly at risk.

It's a big topic. I could talk about this for a long time.

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