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Maybe Florida should take care of its own flood insurance

Dee Nicholas, 61, left, and Paul Nicholas, 80, of 723 Riverside Drive in Tarpon Springs are among the city’s homeowners who could become the hardest hit under the Biggert-Waters Flood Insurance Reform Act.

DOUGLAS R. CLIFFORD | Times

Dee Nicholas, 61, left, and Paul Nicholas, 80, of 723 Riverside Drive in Tarpon Springs are among the city’s homeowners who could become the hardest hit under the Biggert-Waters Flood Insurance Reform Act.

Let's start with the numbers:

Florida residents paid $3.60 in premiums for every $1 in claims received from the National Flood Insurance Program from 1978 through 2008.

This wasn't the highest ratio in the nation, but it was significant considering Florida makes up nearly 40 percent of all NFIP policies.

By comparison, residents in Alabama paid 40 cents for every dollar in claims. Louisiana paid 26 cents and Mississippi paid 20 cents.

Now let's consider the fallout:

Florida's reward for paying significantly more than it received in flood insurance rates for the past three decades is not, as you might expect, lower bills.

Instead, bills are going up. Way up. In some instances, rates will increase 20 percent annually. In cases of homes sold in high-flood areas, bills could immediately skyrocket by 500 percent or more.

Finally, let's ask a question:

Why should Florida remain in the NFIP?

The national flood program made an enormous profit on Florida for 30 years, and will now extract even greater numbers by refusing to subsidize high-risk policies.

That might be actuarially sound if you have to insure the entire nation, but it doesn't do Florida much good based on three decades worth of flood data.

And that means it's probably time for Florida to tell the folks at the NFIP to figure out another way to pay their bills, because we've already done our share.

That's sort of what state Sen. David Simmons, R-Altamonte Springs, suggested Tuesday as the chair of the Senate Banking and Insurance Committee.

"It doesn't take a rocket scientist to figure out that if we're paying 3.6 times what we're getting out of it, and we make up 2 million of the 5.6 million policies that are out there, we're the backbone," Simmons said during a committee meeting. "We're the ones that are subsidizing the entire NFIP."

So what's the alternative?

Florida can establish its own flood insurance program (my choice) or it can invite private insurers (Simmons' preference) by relaxing current regulations.

Either way, you can assume rates will still increase. While a $3.60 return on every dollar sounds obscenely attractive, there is a risk of a once-in-a-century storm quickly wiping out reserves. So, yes, there might be a justification for higher bills.

The question is: Do the rates need to go as high as the NFIP is demanding?

I'm no economics expert, but wouldn't it be possible to have one-time rate increases of 20 or 30 percent that go into a state-run catastrophe fund, and then allow private insurers to pocket the same profits the NFIP has enjoyed in Florida for decades?

"Given the loss ratings in Florida over the past 20 years and the amount of premiums being paid, I would think private insurers might believe a market exists," said Sen. Tom Lee, R-Brandon, who sits on the insurance committee. "It's my thought Florida should move aggressively on this.

"I'm optimistic that with the right encouragement from the Legislature and governor that we can find a solution."

The key is that legislators do not relax regulations so much that five years down the road Florida has a whole new set of problems with private insurers.

On the other hand, it can't be much worse than what the NFIP is offering.

Maybe Florida should take care of its own flood insurance 10/09/13 [Last modified: Wednesday, October 9, 2013 7:21pm]
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