Florida has been so lucky for the past few years. We have, for the most part, been ignored by the Atlantic hurricane seasons, and we have yet to see the massive annual snowfalls that the Northeast has put up with this year. Don’t laugh — the weather has been weird enough lately that anything seems possible. Next week we may see frogs falling from the sky.
In these “off” years, Florida breathes a sigh of relief. Then homeowners realize that the National Flood Insurance Program doesn’t care: Premiums remain high, even increase, regardless. It isn’t the experience that matters; it is the risk. And for a long time, the state’s propensity to flood has meant we have more NFIP participants than any other state. And there are no economies of scale: We still pay four times more in premiums than the program pays out for Floridians’ claims.
For a long time, NFIP was the only game in town. Private insurers had more than a few hurdles to entering the market, and it’s hard to fight the federal government. For example, mortgage lenders in Florida generally require proof of flood insurance. Many lenders backed by Fannie Mae and Freddie Mac require proof of flood insurance through NFIP. Plus, NFIP’s corner on the market means it holds most of the data needed for rating, too, and the agency is unwilling to share.
NFIP, however, is not like Citizens, the state-backed insurance company. Where Citizens Property Insurance Co. must offer coverage to homeowners that cannot obtain coverage elsewhere, NFIP is not the insurer of last resort for flood insurance. As the Florida Office of Insurance Regulation explains, individual homeowners don’t have to qualify; entire communities need to.
You read that right. The community joins NFIP, because, to justify the federal government’s underwriting of the coverage, the community must also agree “to enforce sound floodplain management standards,” according to the FLOIR. Only then are homeowners allowed to participate in the program — and allowed to pay whatever NFIP decides is a fair premium.
The Florida Legislature has been trying to open the state’s flood insurance market to private companies for some time now. Last year, lawmakers took the first step: streamlining the process for private insurers to offer flood coverage.
This year, the Legislature has a couple of bills making their way through the House and the Senate that would take the process a step further. We’ll explain those in our next post.
Source: Florida Office of Insurance Regulation, “Flood Insurance,” accessed March 25, 2015Share