Florida Lawmakers Unveil Plan to Encourage Private Market for Flood Insurance

With the chances of a federal solution to rising flood insurance rates waning by the day, Florida lawmakers are pressing forward with a bill to create a private market solution to the problem.

Florida State Senator Jeff Brandes of St. Petersburg recently released a bill designed to provide a statutory framework giving domestic insurers and surplus lines carriers the ability to market a state-specific flood plan in hopes lof giving property owners a way to avoid rate increases coming from the federal National Flood Insurance Program.

“Floridians deserve an alternative to the drastic rate increases of Biggert-Waters,” stated Brandes. “This legislation builds a framework for the Florida-based solution that gives flexibility to the homeowner.”

Congress enacted the Biggert-Waters Insurance Reform Act of 2013 in order to close a $24 billion funding shortfall in the NIP caused in part by claims from Hurricane Katrina and Superstorm Sandy.

The reforms include a phasing out of rate subsidies that have benefited about 1.1 million, or 20 percent, of NFIP customers for years. As the reforms have started taking effect, however, there has been a backlash from states where many of these affected property owners reside. In Florida, more than two million homeowners are covered through the NFIP.

While many will see some increase in premiums, those whose homes were built before 1974 that want to sell their homes or whose policies lapsed would feel the brunt of the costs. Those 268,000 Florida homeowners would lose subsidies that have suppressed the actuarial cost of their flood insurance for decades.

Federal lawmakers representing states with large tracts of flood-prone area are urging federal lawmakers to delay the law, but Congress has shows few signs of delaying or repealing Biggert-Waters.

“We cannot wait to accomplish anything amongst the gridlock of Washington, but we focus on private insurance solutions to increase competition and lower premiums,” stated state Rep. Larry Ahren (R-Seminole), who is expected to file a companion bill in the coming days.

The bill grants insurers greater regulator leeway to qualify and market a flood-only policy.

The bill defines a “flood” as a complete or temporary condition affecting two acres of normally dry land or two or more properties. A flood itself must arise from the overflow inland or tidal waters. Additionally, a flood must arise from an unusual accumulation of water from any storm, mudflow or the collapse of land on properties located on waterfront shores.

The heart of the bill, however, is aimed at establishing the criteria for deductibles and coverage.

Deductibles would have to equal those granted under the NFIP. The policy amounts could be limited to the outstanding mortgages on a property. Current and prospective homeowners would be allowed to choose either the actual cash value or the replacement costs of the property.

What would not be covered is additional living expenses, personal property or ordinance-and-law coverage.

By comparison, under the current NFIP policy, coverage limits are limited to $250,000 for structural damage and $100,000 for personal property.

State Senator Don Gaetz (R-Niceville) hinted that some portions of the legislation could get a full Senate vote when the legislative session convenes in March.

“I am particularly encouraged that this bill allows homeowners to insure for the amount of the mortgage, without mandating insurance that does not meet their needs,” said Gaetz. “I expect the bill will be given serious consideration by the Senate.”

Several provision of the bill, however, may prove to be controversial. One provision would allow policies to be marketed with a surplus lines carrier with requiring the carrier to first show the policy had been shopped to three admitted insurers.

A second provision would allow insurers to bypass most of the ratemaking methodology used for currently examining and approving homeowners rates.

What remains to be seen, however, is if the bill is approved just how many insurers would be willing to market flood-only policies in the state.

Homeowners Choice Property and Casualty Insurance Co. has developed an endorsement giving its 140,000 customers homeowners the opportunity to purchase flood coverage.

The Flood Insurance Agency, a private agency that has been exclusively marketing flood insurance around the country through the NFIP since 2004, is offering policies through a surplus lines carrier, Lloyd’s Private Flood.

Don Brown, representing the Florida Insurance Council and the Associated Industries of Florida, said the bill raises issues that remain to be clarified.

First on the list is the fact that 83 percent of current Floridians covered through the NFIP will not be affected by Biggert-Waters. That means if the state decides to alleviate the NFIP rates for the some 260,000 policyholders, in effect it would require the 83 percent to subsidize those policies.

Brown also said that it remains to be seen whether the state has the authority to create a state-specific solution, especially if it conflicts with the requirements of the NFIP.

“This is an incremental step that could potentially offer consumer options,” said Brown of the bill. “But it does not solve the big problems.”

The state Senate Banking and Insurance Committee is expected to consider the bill at its meeting on January 8.