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Let the flood insurance games begin! Congress ponders premiums

Tue Jul 28th, 2015 on     Insurance Law,    

After discussing market considerations in setting insurance rates, we turn to recent activity in Congress. As you recall from our last two posts, insurance companies are required to set rates based on risk and loss expectations, not on supply or demand issues. Florida regulators maintain that insurance companies are increasing premiums because they can, not because they have to: Insurers realize that there is very little competition in some parts of the state and that they have, pardon the insurance pun, a captive audience.

Apparently market considerations are bad if they push rates up. What if adding a little competition to the market does the opposite — if the result is a premium reduction? It looks as if consumers benefit, and regulators respond favorably.

The subject comes up again because Florida Rep. Dennis A. Ross (R) recently introduced the Flood Insurance Market Parity and Modernization Act of 2015. The bill looks to grow the private flood insurance market to compete directly with the often vilified National Flood Insurance Program.

As we have said many times, no one knows more about flood insurance than Florida’s property owners. Florida, in fact, has been trying to build a more favorable market for private flood insurance providers. Lawmakers are not only responding to market concerns, they are also responding to constituent complaints about endless premium increases that average property owners cannot afford.

Private insurers would offer more reasonable rates, and NFIP might even lower its rates — or slow the pace of increases — if there were a little more competition. Newcomers to the flood insurance marketplace would have to set their rates according to solid actuarial practices, and that, presumably, would force NFIP to lower its unsound, inflated premiums.

The theory sounds fair, but opponents say the law is unnecessary. The people complaining about flood insurance premiums, the argument goes, are the owners of rental properties or second homes. The problem is not that these property owners cannot afford their premiums, opponents continue; the problem is that they don’t want to pay the higher premiums.

Regardless, the Act and its Senate companion are gathering support. With the August break coming up, though, it is hard to say if either chamber will move the bills forward before the end of the year.

Source: Live Insurance News, “Lawmakers begin to focus on flood insurance in Florida,” S.Vagus, July 17, 2015

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