Flood Insurance… Something Has To Change
Created in 1968, The National Flood Insurance Program (NFIP) was developed by the Federal Government to give property owners the ability to insure their properties against flood loss that private insurers deemed as too risky. For the past 47 years, many Floridians have found flood insurance through this program. Until recent rate hikes were imposed, the premiums charged by the NFIP did not upset many Floridians. However, after Hurricane Katrina & Sandy, the program became over $24 billion in debt. Lawmakers in Washington felt they had to do something, so their knee jerk reaction was to raise rates drastically across the board with no regard for actuarial fairness, or the unintended consequences that might occur.
Congress decided to pass the Biggert-Waters Flood Insurance Reform Act of 2012, which called for unreasonable increases in insurance premiums and other drastic revisions that could have made many Florida properties drop in value. Fortunately there was a loud outcry from realtors, mortgage companies, and insurance agents which brought to light many of the unintended consequences. Congress decided to pass another act in 2014 to remedy many of the problems in BW12. Known as The Homeowners Flood Insurance Affordability Act of 2014 (HFIAA), it repealed many of BW12’s provisions, but the Act still called for incremental annual increases for many Floridians (to see more about this Act view our April 1st Blog.
In this week’s flood insurance news, we have a local Senator calling for private market alternatives that most insurance agents are in favor of (private insurance refers to insurance coverage provided by non-governmental, for-profit companies that use mathematical data to determine premiums charged to their consumers). On August 12, 2015, Florida Senator Jeff Brandes wrote to Florida’s Insurance Commissioner, Kevin McCarty, regarding Florida’s ever-increasing flood insurance premiums. On August 14, 2015, Commissioner McCarty responded to Senator Brandes’ letter. In McCarty’s response he said that Florida’s flood insurance premiums are “unfairly discriminatory,” and called for an actuarial study to be performed by Federal Emergency Management Agency (FEMA), which is the government agency who manages the NFIP.
McCarty said that Florida’s loss ratio from 1978-2002 was only 28.2%, which is a non-alarming ratio, especially when compared to other states. The Commissioner advised that he would call for further release of loss data from the NFIP, which has kept loss data from private insurer’s eyes. Both Brandes and McCarty hope that the release of data will help to entice private market carriers into the state, which can compete like all other types of insurance.
In this Monday’s Tampa Bay Times, Senator Brandes released a column entitled Restore Fairness in Flood Insurance. He commented on the exchange of words with Commissioner McCarty and went on to say that he believes that “Federal flood insurance rates are increasing simply because they’re mandated to do so by law, not because of any actuarial justification.” Brandes suspects that in attempt to fill a $24 billion deficit caused mainly due to Hurricane Katrina and Sandy, Congress has decided to tax coastal properties in Florida.
Brandes believes, “The future of affordable flood insurance rates rests in a robust private market.” In order to have the private market carriers be an alternative, federal law must be changed so that the mortgage companies will accept private market alternatives. Brandes supports the Flood Insurance Market Parity & Modernization Act of 2015, which has been presented by US Representatives, Dennis Ross, R-Lakeland, and Patrick Murphy, D-Jupiter. The Act would remove restrictions that the federal government places on many private flood carriers, and would make private flood insurance a viable option for mortgages backed by Fannie Mae and Freddie Mac.
Brandes finished his column by stating, “Without private alternatives, the federal government will continue to place the burden of the NFIP’s debt on the backs of Floridians.”
At Insurance Resources we will continue to monitor the flood insurance marketplace in order to provide the best insurance solutions for our clients. Many of our homeowner’s carriers are beginning to offer private market alternatives, and we expect that more carriers will enter the flood market as further information is released from FEMA and as premiums increase. Our agency also have access to many Excess and Surplus lines markets that have begun to offer residential flood insurance.
If you ever have any questions regarding recent flood regulations or any insurance matters please contact our agents.