Flood Insurance …When Politics & Reason Collide!

There’s no telling where the federal foolishness over flood insurance will end up–I predict, not with actuarial premiums; especially not for NFIP policies and especially not anytime soon.

Precipitous NFIP rate increases are courtesy of ill-advised votes by almost every member of congress, especially Democrats, none of whom voted against the rate increases. This inexplicably includes Bill Nelson, a congressional veteran  from America’s premier flood state–a lawyer and former insurance commissioner to boot, he should have known better. (See CFO Jeff Atwater’s letter to Bill Nelson).  Also, (See NOTE #1 below).

Due to these Washington missteps Floridians are virtually guaranteed to see legislation  early in the 2014 session to allow and encourage private market flood insurance alternatives.

Already the Senate Banking & Insurance Committee has voted “unanimously” for SB–542 by Brandes (R-St. Petersburg). It, and the house companion H–0581 by Ahern (R-Seminole), are the likeliest survivors of 2014’s amendatory gauntlet.

After all, the private market can, maybe, provide a flood product with slightly more coverage than the NFIP policy, at a rate slightly less than the unsubsidized rates of Biggert-Waters. (See NOTE #5 below).

But…carriers will need room to maneuver if competition is to be part of the equation.

This may be something trial lawyers and “some” consumer advocates don’t get–the former having pushed nearly a dozen amendments “mandating” private flood offers be weighted down with everything from prior approval to mandatory mudslide coverage.

In fact, knowing how precarious the writing of flood can be (especially in Florida) it almost appears like the plaintiffs bar is trying to scuttle a precious cargo.  Maybe they don’t want a private option at all. Or, maybe they don’t understand that, unlike the NFIP, private carrier’s can, and most assuredly will, underwrite.

Translation: private carriers will either not offer flood at all or offer it only to selected risks (like those not susceptible to mudslides as one example).

Meanwhile Realtors need any solution to the exorbitant flood premiums sapping new home sales.

While insurer’s endorsement of Biggert-Waters is consistent with industry goals including, perhaps, creating an opportunity for private options, the Realtors (like congress generally) apparently didn’t understand the full impact and must now fire from both flanks, Washington and Tallahassee. (See NOTE #2 below).

And, vexing to say the least is why President Obama doesn’t simply solve this problem.

How many times since last October has the president stroked an executive pen overriding those portions of his health care act that negatively impacted premium payers?

Literally, it’s just that easy and, for this president, it would also be consistent!

Now consider the following political irony.

Florida lawmakers are creating a private market flood option because the federal government implemented sticker shock rate increases (See NOTE #4 below) for the NFIP.  This created (albeit unintentionally) room for private carriers to “depopulate” the residual market.

Then, without even recognizing the irony, the very same lawmakers, in the very same meeting (see video), were updated on the Citizens Clearinghouse–a $45 million permanent bureaucracy designed to “depopulate” homeowners from another residual market into private alternatives. (See Celebrating Citizens Clearinghouse?!)

Doesn’t this beg the question…why couldn’t lawmakers save the $45 million by simply raising Citizens rates like congress did to the NFIP?

When politics and reason collide…politics always wins!

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NOTE #1: Sen. Marco Rubio was one of very few to vote against Biggert-Waters. It passed the House 406-22, and later was incorporated into a transportation funding bill that passed both the House and the Senate with hardly any opposition, including even Louisiana congressional members who were unanimous in support. Overall, no Democrat voted against the bill.

NOTE #2:  Biggert-Waters had very powerful backers, including: American Insurance Association, American Land Title Association, Building Owners and Management Association, CCIM Institute, Chamber SWLA, Council of Insurer Agents and Brokers, The Financial Services Roundtable, Independent Insurance Agents and Brokers of America, Institute of Real Estate Management, International Council of Shopping Centers, Manufactured Housing Institute, Mortgage Bankers Association, National Association of Home Builders, National Association of Mutual Insurance Companies, National Association of REALTORS, National Ready Mix Concrete Association, and the U.S. Chamber of Commerce.

NOTE #3: The federal Biggert-Waters act aims to reduce a $24 billion deficit by allowing premiums to rise to market rates. The premiums for current homeowners would increase over the next five years, but new buyers of those homes would have to pay market rates immediately. While flood insurance rates in some cases could triple or quadruple for some older, low-lying properties.  Florida Tax Watch, a nonpartisan research institute, estimates that premiums will rise for 13 percent of Florida’s subsidized policyholders. Nearly 2 million Florida homeowners have NFIP flood policies making up 37 percent of the entire federal pool. FEMA stats show that although Florida paid $16 billion in premiums in the last 20 years, it collected less than $4 billion in claims.

NOTE #4: One media source reported a public exchange with Susan Wilson, FEMA’s floodplain management and insurance chief for the southern states and citing the following sticker shock scenarios:

There was the condominium owner who said his board raised his dues by $400 a month to pay for flood insurance, and the Hudson man who said his premium went up to $10,000 for a $115,000 home.

Gulf Harbors resident Michael Napier said his flood insurance premium shot up to $31,000 a year for the house he bought last April. “They’re going to foreclose on my property,” Napier said. “I can’t afford $2,500 a month for my insurance on top of a $2,000 mortgage.”

Hudson resident Mike Westney is in the same predicament. He bought a house on a canal last year, and his flood insurance premium increased tenfold — to $20,000 a year. He bought private insurance from Lloyds of London for $9,300, but he doesn’t know how long he’ll be able to make those payments.  

NOTE #5:  The Florida flood bill(s) currently give insurers more freedom in setting rates by allowing an option of either an OIR approved or a deregulated approach.  They also let homeowners choose ACV or  replacement cost  for only the mortgage amount. For a complete analysis of the bill go here.

NOTE #6: Even without statutory enactments at least two Florida specific private options for residential flood coverage have emerged. The Flood Insurance Agency of Gainesville offers a Lloyds backed option.  And, Homeowners Choice gained OIR approval for an admitted policy comparable to the NFIP’s version, effective January 1. Offers such as these aren’t really something new, however.  Carriers, including Chubb, WNC First, and Lloyd’s, have offered non-Write-Your-Own (WYO) flood coverage for years.

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