It has long been clear that the federal government can neither explain nor justify absurd rate increases for flood insurance. Now there is more concrete evidence that flood insurance does not have to cost so much. Lloyd's of London is quoting rates for Tampa Bay homeowners that are thousands of dollars less than those under the National Flood Insurance Program. That is great news for homeowners, but it reaffirms this is an avoidable crisis caused by an ignorant Congress and a federal program run amok.
Sorting out the complicated federal flood insurance program is akin to deciphering the tax code. But the bottom line on rates does not require even a calculator to understand. As the Tampa Bay Times' Jeff Harrington and Susan Taylor Martin reported, $146,000 of flood coverage on a house in St. Petersburg has a renewal rate from the federal program of $6,685. The Lloyd's rate: $1,367. For $250,000 of coverage on a Tampa home, the flood program rate is $6,342. The Lloyd's rate: $2,192.
No wonder so many voters do not trust Congress or the federal government to treat them fairly. It already was clear that members of Congress had no idea of the financial pain they were inflicting on so many of their constituents when they approved the 2012 Biggert-Waters Act. All they knew was that the law was aimed at getting the flood insurance program on more solid financial ground by phasing out two kinds of subsidies over a five-year period. The result for many owners of modest homes in Tampa Bay and elsewhere: exponential premium increases that were not in line with the value of their homes, and a frozen real estate market.
With public outrage building, Congress approved a partial fix last month that heads off some of the worst premium increases but does not help everyone. The phase-out of subsidies for grandfathered policies was eliminated. The phaseout for owner-occupied older homes was put on a more gradual slope, but there still will be significant annual increases of up to 18 percent for many of those homeowners. Nothing was done for second homes or commercial properties that predated the flood maps, and they are still subject to an average 25 percent annual increase until they reach an actuarially sound rate.
The Lloyd's flood insurance rates raise further questions about the assumptions and calculations driving the increases in the federal rates. Private insurers also have to rely on flood maps and make assumptions about the impact of major hurricanes. Presumably they want to make money while the federal program only should break even. Yet Lloyd's is writing flood insurance for Tampa Bay homes with premiums that are thousands of dollars less than the federal program. One guess as to whether Lloyd's or the feds have the most sophisticated, accurate models for estimating risk and setting fair rates.
In Tallahassee, state legislators should proceed with efforts to open the Florida flood insurance market to more private insurers. In Washington, members of Congress should not think for a minute that their work is done with last month's revisions to federal law. They should continue to demand more openness from the Federal Emergency Management Agency about how the federal program's premiums are set, and they should provide relief for owners of second homes and commercial properties who have not been helped at all. The Lloyd's rates indicate that something is not right with the federal flood insurance program, and Floridians are still being gouged.