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Column: Restore fairness in flood insurance

 
Federal action is needed to restore fairness in the National Flood Insurance Program, whose rate increases are excessive, arbitrary and discriminatory.
Federal action is needed to restore fairness in the National Flood Insurance Program, whose rate increases are excessive, arbitrary and discriminatory.
Published Aug. 31, 2015

In the words of Yogi Berra, it's deja vu all over again. Florida is facing another episode of rising flood insurance premiums. Homeowners again risk foreclosure due to unaffordable coverage. This should sound familiar; it is the same crisis we faced in 2013 after the passage of the Biggert-Waters Act to fill the $24 billion hole from Hurricanes Katrina and Sandy in the National Flood Insurance Program.

Biggert-Waters proposed drastic rate increases on coastal properties, with Pinellas and Hillsborough counties among the hardest hit. In Pinellas alone, 33,000 households saw sharply higher rates. Some Pinellas residents saw their insurance premiums increase by more than 600 percent. In response to these radical rate increases, Congress modified the law to cap premium increases at 18 percent per year for primary residences and 25 percent for second homes.

Throughout the discussion over Biggert-Waters, the debate in Washington focused on how to rapidly cover the debt that had been incurred from previous storms. This is very different than a discussion over the fair and appropriate rate of insurance to charge specific properties based on their risk. With those new arbitrary rate increases set in law, Congress has entered the world of fantasy ratemaking. Left unanswered is whether these rates are based in any actuarial fact.

I recently wrote to Florida's insurance commissioner, Kevin McCarty, expressing my concern that rates charged by the NFIP may be excessive, arbitrary and discriminatory. We got our reply a few days later: He agreed. The commissioner said the methodology used by the NFIP to determine its rates across the nation may be unfairly discriminatory. He went further to say that the NFIP rates wouldn't pass the scrutiny of Florida law. Finally, he noted that the loss ratio for Florida flood policies would not suggest that dramatic rate increases are needed.

So why are our rates continuing to increase? I believe that federal flood insurance rates are increasing simply because they're mandated to do so by law, not because of any actuarial justification. In an attempt to plug a massive budget deficit in the NFIP, Congress turned federal flood insurance into a tax on coastal homeowners. That strategy is wrong, and it is having a devastating impact on our community.

When the flood insurance crisis began we pushed more flexible options for homeowners. The Florida Legislature passed a law to encourage private insurance as an alternative to federal flood coverage. I believe the future of affordable flood insurance rests in a robust private market. The NFIP has let politics set the flood insurance rates, and we now have confirmation that those rates are based in fiction rather than fact.

We need immediate federal action on two important issues to restore fairness in flood insurance and promote a competitive market.

First, federal law must be changed so that mortgages recognize private flood insurance in states that regulate it. With so many mortgages backed by Fannie Mae and Freddie Mac, federal underwriting standards requiring NFIP coverage have become the lending standard. If this is changed homeowners will be able to satisfy their mortgage requirement of flood coverage with more affordable private options. U.S. Reps. Dennis Ross, R-Lakeland, and Patrick Murphy, D-Jupiter, have offered legislation to accomplish this change, and Congress should pass it.

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Second, the federal government must release NFIP loss history data to the private sector. Insurance companies need this data to properly price the risk to properties. The NFIP has maintained a monopoly over flood insurance for decades and it possesses the only loss data for many coastal properties. Until the federal government releases this data, insurers are shooting in the dark when they attempt to set their flood rates. U.S. Rep. David Jolly, R-Indian Shores, has issued this request to the federal government and we should strongly support his efforts.

Without private alternatives, the federal government will continue to place the burden of the NFIP's debt on the backs of Floridians. We have an opportunity to lead in flood insurance reform. We already have the regulatory structure in place, and our state currently makes up 37 percent of the NFIP's premiums. With private alternatives the homeowner will reap the benefit that results from choice and competition in the marketplace.

Jeff Brandes is a St. Petersburg Republican who represents Florida Senate District 22, which currently covers parts of Pinellas and Hillsborough counties. He wrote this exclusively for the Tampa Bay Times.