Flood insurance program could be under water
without Florida policies
Article Courtesy of The Tampa Bay Times
December 26, 2015
The National Flood Insurance Program was in debt.
Lots-of-zeroes kind of debt.
So someone came up with the bright idea to raise flood insurance rates
to more profitable levels. How were those levels determined? Well,
explanations were kinda vague.
All we knew was that some premiums were originally scheduled to double
or triple or go even higher before Congress stepped in to insist rates
go up at a more gradual pace.
Problem solved, right?
Yeah, maybe not.
The problem may be worse.
It's beginning to look like residents in Florida were seriously unhappy
with the NFIP's extortion-like rate hikes, and with the feeble
justifications from the Federal Emergency Management Agency. According
to data collected by the Palm Beach Post, the NFIP has lost nearly
300,000 policies in Florida since 2009.
"Losing 300,000 policies is a disaster for the program,'' said J. Robert
Hunter, a past director of the NFIP. "The idea is to get everybody in
the program and make sure they're all paying sound premiums, which
spreads the risk factor for everyone.
"A loss of 10 percent of the policies signals that something is wrong;
the pricing is wrong.''
It could be argued that the NFIP can afford to absorb those losses
because of the higher rates it is charging, and the reduced exposure
from writing fewer policies.
The problem with that argument is the policies lost by the NFIP are,
more than likely, the kind of low-risk homes that insurance companies
For instance, the number of policies written in Pinellas County has
dropped 9.3 percent since 2009. But if you dive deeper into the numbers,
you see that the biggest drop has been among inland communities.
Pinellas Park has seen a 28.8 percent reduction in NFIP policies. Largo
is down 28.9 percent and Kenneth City is down 15.5.
Meanwhile, Indian Rocks Beach and South Pasadena are down 3.3 percent.
St. Pete Beach is down 4.1 and Gulfport is down 3.1.
Those numbers don't bode well for the NFIP. And they probably aren't
good for coastal residents who might be asked to pay even more to make
up for the loss of inland policies.
"If you were an insurance company, where would you rather write
policies?'' asked Jake Holehouse, a St. Petersburg insurance agent who
specializes in flood issues. "If this continues long-term and the NFIP
keeps getting stuck with all the high-risk policies, you have to ask
what's going to happen down the road.''
A number of factors have probably contributed to the NFIP's loss of
customers in Florida. Legislation pushed by state Sen. Jeff Brandes,
R-St. Petersburg, this year opened the market for private insurers to
begin writing policies, and a number of homeowners have taken advantage
of more competitive rates.
Some homeowners who don't have a mortgage, and thus aren't required to
carry flood insurance, have dropped their coverage.
Another contributing factor is the complete lack of transparency and
flexibility shown by FEMA officials. Their original price hikes put
forward in 2013 were so obscene, and in some cases completely illogical,
that it would be natural for residents to lose faith in the program.
"I think you have an agency suffering from a very bad reputation,'' said
Amy Bach, executive director of the nonprofit insurance advocate United
Policyholders. "One of the problems with the program is not enough
people are in on it, so losing more policies doesn't sound like a good
It is indisputable that the NFIP is in a money crunch — it is estimated
the program is $23 billion in debt after catastrophic storms in New
Orleans and New York — and solutions had to be found.
But because Tampa Bay is pretty much ground zero for flood insurance —
the NFIP has more policies in Pinellas County than in 43 states — the
agency was essentially demanding that we foot the bill for the debts run
up in other states.
According to numbers compiled by state Insurance Commissioner Kevin
McCarty, Florida has gotten back 31 cents for every dollar it has given
to the NFIP since 1992. If you go back to 1978, the number drops to 28
In other words, Florida has done more to fund the program than any other
state for 35 years. And our reward was to have our rates doubled and
How is that possibly feasible?
FEMA claims it is simple actuarial rates. Except FEMA closely guards its
formula for determining those rates. Two months ago, McCarty suggested
FEMA's rates were "inadequate or unfairly discriminatory'' and asked the
agency to provide information by Dec. 15 to explain premium prices. FEMA
has not yet provided that information but says it is willing to
No one is disputing that Florida should pay its fair share. We have more
coastline than any other state, and we're at more risk of hurricanes.
But instead of asking Florida residents to pay the bulk of the bill for
catastrophes in New York and New Orleans, it makes more sense for
Congress and FEMA to spread flood insurance costs across the country.
Mandatory flood insurance polices for federally backed mortgages is one
simple solution. Even if a policy in Ohio is $25 annually versus $2,500
in Florida, the risk has been spread, and funds are available before the
next disaster hits.
The only certainty is that gouging Florida residents is not the answer.
And if FEMA officials have any doubt about that, there are 300,000
homeowners who could explain it to them.