Q&A: Florida Representative Backs Call for NFIP Transparency

Florida State Representative Bill Hager says the state is turning up the heat on the National Flood Insurance Program as Florida residents become increasingly concerned with the high rates they are paying for flood insurance coverage.

Lawmakers like Hager, State Senator Jeff Brandes, and Florida Insurance Commissioner Kevin McCarty have called on the NFIP in recent months to provide more information on how it prices coverage for state residents.

Hager is a member of the Florida Insurance Committee in the House of Representatives representing House District 89 that runs from Bookertown to Palm Beach. He is also a former Commissioner of Insurance for Iowa.

Hager discussed with Insurance Journal the options state lawmakers have in dealing with the NFIP and why the state is encouraging the privatization of the flood insurance market.

Insurance Journal: What are the current issues the Florida Legislature has with NFIP in regards to Florida flood insurance rates?

Florida State Representative Bill Hager: The key concern and the issues really arose in connection with the rate increases that were experienced starting in 2013 in which Florida, and more importantly it’s homeowners who purchased flood insurance, experienced significant rate increases following enactment of a federal act.

The operative issue in Florida is the disproportionate relationship between our losses as we understand…as we can interpolate them from data provided by the NFIP and the premiums our people pay, and more accurately the continued increase in the premiums our people pay, so the mood in Florida is driven by that environment.

IJ: Why isn’t NFIP data already available to Florida state lawmakers?

HAGER: That’s a very good question. That was exactly our question… The data that’s available and that’s been provided by the NFIP has been wholly insufficient for us to answer our questions.

IJ: How is the Florida legislature “turning up the heat on NFIP?” What actions can you take in changing rates or making any sort of changes to the program for Florida?

HAGER: It is a federal program. The states do not have jurisdiction over the program. We don’t have jurisdiction over the rates. We certainly have authority to do what we’ve done to date, which is attempt to ferret out the actuarial methodologies that have resulted in what we believe is a highly disproportional rate paid by Floridians.

We believe it’s well within our province to get the federal government to cough up their methodologies and their data so that from a rate‑making standpoint we can at a minimum reach our own judgment, and to the extent we believe Floridians are being gouged, and we do believe they’re being gouged, we can turn up the heat on our Florida delegation on this issue and the usual apparatuses, so that’s one way.

The second way is we have opened up the sale of flood insurance in the private marketplace in the State of Florida. We did so through different bills. In 2014, we authorized flood insurance to be sold in the state by Florida insurers, and this is flood insurance outside of the NFIP program.

In 2015, we articulated forms of flood insurance that get written by authorized insurers outside of the NFIP, and we put in place insurers’ rights to write standard coverage, that is to say coverage identical to that of the NFIP, and preferred coverage… which is broader, has a broader definition of flood insurance – expanded definition of living expenses and replacement cost as options of coverage.

…Our goal is pretty simple in all of this. We want a robust market. We want to unleash competition. We want relief for homeowners.

IJ: The private marketplace could be more expensive than the NFIP program…has that been the case so far?

HAGER: We require that the rates that are utilized in Florida under the legislation we passed in the last couple years it include approval of those rates by the Commissioner of Insurance for the State of Florida, so those rates are all regulated. They’re obviously going to be market‑driven, loss‑driven.

Let the marketplace fair it out, the reasonableness of the price. We’ll let the vendors, that is, the insurance companies, determine what they want to offer in the broader marketplace.

IJ: How else is the Florida legislature working with the Office of Insurance and Commissioner McCarty on this issue? Is there a chance that Florida could exit the NFIP program over this?

HAGER: No. I don’t think there’s any reason for us to exit the program. We are a legislature committed to solutions, to enhancing the marketplace, so we’re not about the business of exiting.

We’ve done a couple things here…We’ve put in place legislation that facilitates private sector participation. There is a significant number of insurers that in fact are writing now in Florida in the private market, both primary and excess coverage.

The other thing that we’ve done is in connection with the hurricane commissions… the Florida Hurricane Loss Projection Methodology Commission…its job is to articulate reasonable methodologies to be utilized with respect to coverage, but what we’ve folded into that legislatively is for that same commission to develop actuarial models for flood insurance.

That report will be out July of 2017, so we’re going to observe the marketplace across the next couple years, we’re going to see how these programs that we’ve put in place work, and we’re going to continue to do everything in our power to create a robust private market that can run alongside and can continue to challenge…the shortfalls in the federal program.

IJ: Are constituents expecting changes from NFIP rates now?

HAGER: Most consumers I think are taking a wait‑and‑see attitude. I can tell you they are appreciative of any and all efforts…

We’ve managed expectations. We’re not showing up saying, “We have the solution.” We’re saying we will utilize tools available to us in connection with doing what we can do continue to keep the heat on the federal system and bring to the surface alternatives that the marketplace may judge are superior.

IJ: Going back to the legislature and McCarty’s letter to NFIP, what is the goal or the expectation that you’re hoping to see out of this?

HAGER: The goal is to see what the data says. Our goal is to use the data on the private side to encourage more private writing, more competition, and three, to do what we can to get the federal government to true up the rates it charges.

As the Commissioner of Insurance of the state said, if this program were to file its rates in Florida based on this experience, you would reject the rates as being unfairly discriminatory and excessive.

IJ: To that end, what options does the state have in terms of them being unfairly discriminatory?

HAGER: First of all, we do not have authority to set the federal rates. That’s federal law. We understand that and we accept that. We certainly as a state, as one of 50 states in the union, have an obligation that when our government, when our federal government, puts in place programs that are needed and that have a cost associated with them, that the cost to our people reflect the underlying losses that are in place.

IJ: What do you think it’s important for agents and brokers to know when speaking to their clients about this situation?

HAGER: The one thing I would say is for agents to be aware of these additional options, these additional programs in Florida in which we have a significant number of writers in the private market outside of the NFIP program, writing policies that are identical to NFIP, writing policies that are superior to those of the NFIP, writing policies that are excess of NFIP.

I would encourage agents to be aware of the expanding marketplace.

To hear the entire interview, including which insurers are writing private flood in the Florida market and what lawmakers will do when NFIP is up for renewal in 2017, click on the podcast below:

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