Florida is ground zero for alternative flood insurance program

Dec. 24--TAMPA -- A series of developments in the state Legislature, Congress, and the finicky insurance industry could make Florida ground zero for a concept unthinkable over the past several decades: A robust, secure and profitable residential flood insurance market.

At a conference earlier this month, 150 insurers, reinsurers, mapping firms and computer modelers concluded that the state is ripe for an alternative to the National Flood Insurance Program, which has been insuring property owners in flood-prone areas since the early 1970s. Recent changes to the national program has left some Floridians facing insurance bills 10 or 20 times higher than in previous years, and policymakers are concluding that only a vigorous private market will keep rates reasonable.

"It really re-affirmed to the admitted carriers and the insurance community that this is a risk that can be managed, can be underwritten, and can be reinsured against in the private market," state Sen. Jeff Brandes said of the conference, held Dec. 9 at the St. Petersburg Hilton. "The tools are there, and they are getting better for managing flood risk."

The meeting was envisioned by Brandes, a Republican from St. Petersburg who has championed flood insurance reform, as a roundtable of 20 or 30 industry representatives to present results of a study of the potential private market by the risk and reinsurance specialist Guy Carpenter. Interest proved to be stronger than expected, with the event drawing participants from around the state and nation.

"Yes, we still have challenges," Florida Insurance Commissioner Kevin McCarty told the conference. "But the fact of the matter is we are in a strong position, our companies are strong, they're in a position to pay claims, rates are going down, and there's plenty of capacity in the reinsurance market to help fund a private flood program that will benefit not only Floridians, but the country."

Florida has about 1.9 million policies in the national flood program, about 37 percent of all policies. As last summer's rains that drenched Tampa neighborhoods showed, it's not just beach houses that benefit from coverage.

Private insurers retreated from the flood market after massive and expensive floods plagued communities along the Mississippi River in the 1960s. A handful of private insurers have written flood policies in the state, with certain conditions, and largely backed by huge surplus lines providers such as Lloyd's of London.

But advances in flood mapping, risk data and computer modeling have made it easier for insurers to assess the actual likelihood of flood damage. The state Office of Insurance Regulation lists seven companies writing private flood policies, but most of those restrict their coverage to million-dollar properties.

Tampa-based Homeowners Choice Property & Casualty Insurance Co., has been writing flood endorsements on standard homeowners' policies and was recently approved to write standalone flood policies.

The company saw an untapped market after the drastic changes to the national flood program sent rates soaring and threatened to cripple the Tampa Bay area real estate market.

"We dug in and did some research and ran some analytics, and said, 'Let's try to find a way we can help these folks,'" said Kevin Mitchell, vice president of investor relations for HCO Group, Homeowners Choice's parent.

The Biggert-Waters Flood Insurance Reform Act of 2012 was intended to shore up the national flood insurance program, which was running a $24 billion deficit. It mandated that the heavily-subsidized federal flood rates be raised to actuarially sound levels.

Homeowners Choice's first customer in 2014 faced an annual flood premium set to rise from the thousands to $57,000. Amid national outcry, the Biggert-Waters reforms were scaled back, but federal premiums are still allowed to rise 18 percent a year.

Even that can be unsustainable for moderate income Floridians. So many of the state's political leaders are focusing on a viable private market to provide relief.

Brandes marshalled legislation through the 2015 session that allowed private insurers to tailor flood policies to individual homeowners, as opposed to the one-size-fits-all policy provided by the national flood program. For example, homeowners might save money by buying less insurance than provided under the federal program, insuring only for outstanding value of mortgage or the actual cash value of the property. The measure passed and was signed into law by Gov. Rick Scott.

Meanwhile, Rep. Dennis Ross, a Republican from Lakeland, is pushing a bill in Congress that would clarify that private carriers can provide the flood insurance required by law on properties in flood-prone areas. It has bipartisan support and is expected to pass this spring.

Will that tip the scales, luring more private insurers into Florida's flood market?

"It's very possible," said Homeowners Choice's Mitchell. "We did it. A lot of it comes down to your passion to provide a solution. All those bills and laws are critical and very helpful ... but a big piece of it is other companies jumping in. It's no different than the homeowners insurance market back in 2006 and 2007. There weren't many options. But over time, people became more comfortable with it, began to build companies, and it became quite a vibrant Florida market."

Brandes wants to make the Florida legislation a model for other Gulf Coast states, further diversifying the flood insurance market. He told attendants at the St. Petersburg conference that his goal is to have 10 private insurers or more selling flood insurance in Florida in the next two years.

Those in the industry think that's achievable.

"There's no doubt that changes are afoot," said Locke Burt, chairman and president of Security First Insurance Co. in Ormond Beach and a former state senator. "With Biggert-Waters, the U.S. Congress clearly expressed a long-term goal of reducing the role of the federal government in the flood business. You can argue about how long that's going to take, and what form that's going to end up in, but I don't think that consensus is going to change."

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