Florida Commissioner McCarty Says NFIP Rates May Be Unfairly Discriminatory

August 18, 2015

Florida Insurance Commissioner Kevin McCarty said on Aug. 14 that the National Flood Insurance Program’s (NFIP) rates for Florida may be “unfairly discriminatory” and that his office will ask for the actuarial study, including data and models used to determine rates in the state, from the Federal Emergency Management Agency (FEMA) for further examination.

McCarty made his comment in a letter to state Sen. Jeff Brandes, R-St. Petersburg, who earlier this month asked the Florida Office of Insurance Regulation for its support in obtaining the NFIP data.

Brandes said Florida properties make up 37 percent of all flood insurance policies in the NFIP, and to date it has yet to be proven that the rates for those policies are anything other than excessive or arbitrary. The lawmaker is also seeking greater access to NFIP loss-history figures to assist private insurers entering the flood insurance market.

“We share your concern about the need for transparency in the ratemaking process utilized by the Federal Emergency Management Agency for the National Flood Insurance Program (NFIP), and we have publicly expressed those concerns,” McCarty said in his Aug. 14 letter to Brandes. McCarty said Florida’s NFIP experience suggests that the flood loss ratio from 1978-2012 was 28.3 percent — which is not an alarming loss ratio and does not seem to suggest that dramatic increases are needed for Florida risks.

“The Office can request pertinent data and perform a review of NFIP rates based on Florida law if we can acquire the necessary data from NFIP,” McCarty said.

“We will ask them for the actuarial study including all data and models used. This would be necessary to do a review similar to the review we would perform of a private company filing to make a determination of whether the rates meet the Florida statutory requirements of not excessive, inadequate or unfairly discriminatory.”

Without data and further analysis though, McCarty added, “we can say that the rates are unfairly discriminatory.”

He noted that NFIP has developed its rating based on multiple zones that are combined to determine rates, with 30 different A zones and separately 30 different V zones. Those zones are defined based on a theoretical determination of the probability of flooding — with V zones being more coastal — and these are averaged together to charge one rate across the country.

“The averaging together of zones with different costs and charging one rate would be considered unfairly discriminatory from an actuarial perspective which would not pass scrutiny under Florida law,” McCarty said.

The following is a copy of Florida Insurance Commissioner Kevin McCarty’s letter:

Topics Florida Flood

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