It's that time of the year when Floridians must keep one eye on hurricane forecasts and the other on congressional reforms for flood insurance. Both can be devastating for homeowners. The National Flood Insurance Program is set to expire on Sept. 30, and Congress is still stuck in endless debate. It's time for a bipartisan solution that moves the program toward solvency without disproportionately punishing Florida.
There is no doubt the issue is complex. A decade of severe weather incidents has left the federal flood insurance program nearly $25 billion in debt. No one disputes the government has kept the price of most flood insurance policies artificially low since the program was established in the late 1960s. So some kind of market correction was inevitable and probably necessary. But too many of the ideas being floated by the more conservative members in Congress are neither realistic nor fair when it comes to Florida policyholders. Florida accounts for nearly 40 percent of all federal flood insurance policies in the nation, and yet it has gotten back only pennies on the dollar in actual claims the past half-century. Recklessly raising rates is a nonstarter.
The first attempt to reform flood insurance was the Biggert-Waters Act in 2012 that sent rates soaring to ridiculous levels and completely disrupted the housing market in coastal areas. The Homeowner Flood Insurance Affordability Act in 2014 slowed the rate increases caused by Biggert-Waters, but the impending deadline for the program's reauthorization now threatens the relative stability of recent years.
Essentially, one of four things could happen come October: 1) Congress does not reauthorize the program, which means existing policies remain in effect but no new policies are written. This would be devastating to the real estate market and should be avoided at all costs. 2) Congress reauthorizes the flood insurance program but does not include money to adequately subsidize rates. This would cause huge increases for some Florida homeowners. 3) Congress could simply extend the existing program and search for a more permanent solution down the road. 4) Congress could act on a Senate bill, supported by both Republican Sen. Marco Rubio and Democratic Sen. Bill Nelson, that would cap rate increases at 10 percent a year and move forward on local mitigation efforts. For Florida residents, this would clearly be the best outcome.
The market also could be impacted by private insurers getting more involved in writing policies. Legislation by Rep. Dennis Ross, R-Lakeland, and Rep. Kathy Castor, D-Tampa, would lower some of the barriers that have kept that from happening. This is a promising development, but it comes with a caveat.
A recent study by the consulting firm Milliman suggested private insurers could offer lower rates than the federal program to 77 percent of Florida homeowners. Obviously, that would be welcome news. But Milliman's study also suggests 14 percent of homeowners could see their rates double. And many of those homeowners are already paying $5,000 a year or more, even on middle-class homes that are not on beachfront lots.
What Florida and the rest of the nation needs is a plan that encourages private insurers to offer more affordable policies that encourage greater participation and, thus, spreads the risk. But Congress must be careful not to allow the type of cherry-picking that will cause even moderate-risk policies to reach untenable levels. Putting caps on increases and including vouchers for the hardest-hit consumers, like the Senate plan, is one way to get this done. The problem may be complex, but it isn't impossible to solve.