TALLAHASSEE — With thousands of homeowners locked in their homes because of spiraling flood insurance rates, Florida regulators are working on a program to lure private companies to write flood insurance in the state as an alternative to the federal program.
The Florida Office of Insurance Regulation is talking to insurance companies interested in coming to Florida and writing expedited flood insurance policies, Rebecca Matthews, the department's deputy chief of staff, told the Senate Banking and Insurance Committee on Tuesday.
"This is an issue that may need to be taken care of a little sooner than session,'' she said, explaining that regulators do not plan to wait until legislators return to Tallahassee for the spring lawmaking session in March. "A handful of companies have shown interest."
Sen. David Simmons, R-Altamonte Springs, chairman of the committee, said lawmakers must respond to the unintended consequences of the Biggert-Waters Flood Insurance Reform Act of 2012, which could harm the state's economy.
"If there's money to be made in this and the flexibility is given to private enterprise, then we can get that started,'' he said. "The question, of course, is are we going to be able to do it fast enough."
The act attempts to phase in a series of rate increases in the National Flood Insurance Program to close the program's $24 billion deficit. The biggest hit will be to an estimated 268,000 Floridians whose homes were built before 1974 and are in high-risk flood zones. They will lose their subsidized rates when they sell their homes. For some homes, the increase could mean rates will rise from $500 to $16,000, the committee was told.
Thousands of other homeowners, including many who purchased homes in the past year, also face soaring premiums because of new flood maps that take effect as a result of the act.
John Sebree, senior vice president of the Florida Realtors Association, told the committee that the shock from the flood insurance rate hikes will scare buyers away from purchasing older homes and that Florida's gradually recovering real estate market "could come to a screeching halt.''
He urged legislators to consider a Florida insurance alternative rather than wait on Congress, which has been unable to agree to delay the rate increases.
Simmons said that if the private market can't respond fast enough, the Legislature should consider creating an insurance pool of last resort that could offer rates lower than those provided under the federal program.
Nearly 2 million Florida homeowners carry flood insurance through the national program, making up 37 percent of the entire federal pool. In the past 20 years, Floridians paid $16 billion in premiums and saw less than $4 billion returned in claims.
Those numbers seem to indicate that although Florida suffers from a reputation for windstorms, its flood risk is not as steep and could potentially be profitable for private companies.
But insurance experts told the committee that insurers would need extraordinary regulatory flexibility if they were to enter the Florida flood insurance market because the federal program is not able to give them the data they need to determine how much to charge and assess risk.
"The private sector has not written flood insurance because, when you start a company you have to have a 'me, too' filing of something that already exists,'' said Locke Burt, a former state senator from Ormond Beach and an owner of Security First Insurance. In Florida, there is no company that already exists.
Rep. Bryan Nelson, R-Apopka, said he is skeptical the private market can move quickly enough to fill the breach.
"I don't think anything is off the table,'' he said after learning of the Office of Insurance Regulation and Senate plans. "The big problem we have is we don't have enough information to base a decision on, and until we have expected-loss ratios, I don't think the private sector is going to be ready to jump in."
Nelson said he thinks there may be enough capital in the market now to draw new business to Florida, but it would have to come from companies that already do not face exposure from Florida's hurricane risk.
Burt and former state Rep. Don Brown, a lobbyist for Security First, recommended that the Legislature create a task force to find a solution.
In the meantime, Simmons said the threat of Florida homeowners taking their money out of the National Flood Insurance Program might provoke Congress to take action.
"We can provide leverage to get a solution,'' he said.
Mary Ellen Klas can be reached at email@example.com. Follow @MaryEllenKlas on Twitter.