Florida Sheds Flood Policies After Congress Hikes Costs

Nov. 20--Oops, hundreds of thousands of federal flood insurance policies have dried up in Florida, records reviewed by The Palm Beach Post show.

Some see a price-hike "backfire."

Florida, the state with the most flood policies, has shed more coverage than any other -- nearly 300,000 policies by this fall compared to 2009, records show. That's down a striking 13 percent. The national drop in that span: about 8 percent, or more than 400,000 policies.

Congress raised costs to policyholders and added surcharges in the name of getting the National Flood Insurance Program out of debt. But statistics suggest Floridians in particular are bailing out in numbers too big to be brushed off as a blip.

"It absolutely backfired," said state Sen. Jeff Brandes, R-St. Petersburg. "If you raise the price of a product, people will buy less of the product."

The decline is even more pronounced in individual cities. Policies dropped 20 percent in Palm Beach Gardens and 27 percent in Royal Palm Beach, for example.

Why? A focus-group study by the Federal Emergency Management Agency found "recent rate increases appear to drive many lapses."

Records do not quantify what effects may have come from factors like updated flood maps, which can move people in and out of high-risk zones; failures by lenders to enforce required flood coverage in high-risk zones; flood mitigation efforts; or limited efforts by private insurers to offer policies.

But they suggest many property owners with a choice -- that is, not required to buy flood insurance to satisfy mortgage requirements -- are heading for the exits.

From a taxpayer standpoint, fewer policies means fewer people that the flood program may have to pay after a disaster. But it also means fewer people are paying into the system over the long haul, and fewer are covered for flood catastrophes that inevitably produce calls for government emergency help after a disaster.

Years of advertising and public-awareness campaigns have tried to persuade more people to sign up. They have reminded consumers that standard homeowner policies do not cover flood damage.

But Floridians held 284,907 fewer flood policies as of Sept. 30 compared to the same date in 2009. That matters because Florida has the nation's most flood policies by far, more than triple the number in No. 2 Texas.

Trend lines show the number of U.S. flood policies holding mostly steady near 5.6 million before a significant drop starting in 2013 and diving toward 5.1 million this fall -- after the Biggert-Waters Act of 2012 and a subsequent rewrite raised costs to many homeowners.

Florida insurance commissioner Kevin McCarty has concluded National Flood Insurance Program rates would be "unfair and discriminatory" if he regulated them at the state level. Florida homeowners have paid billions more in premiums than those in any other state but have seen less than 30 percent come back to cover claims, he said.

McCarty and state lawmakers, including Brandes, want federal officials to release data on rates to help private insurers better compete in a market historically dominated by the national program.

Florida property insurers have been invited to a Dec. 9 conference in St. Petersburg where McCarty is scheduled to appear, with reinsurance broker Guy Carpenter hosting.

For many homeowners, a comfort zone for an annual premium "seems to be around $600 to $700," federal officials found in a focus-group study. Premiums can be much higher in high-risk zones, but anecdotal evidence seems to indicate homeowners with a choice often balk when costs jump.

"People weigh whether or not flood insurance is 'worth it' by comparing its cost with what they are comfortable paying," officials found.

The handling of new surcharges this year has not boosted consumer confidence.

Take a $225 surcharge for a second home imposed by Congress that increased one Palm Beach County customer's bill almost 50 percent in April. That was 10 times what the $25 cost should have been for his primary home, but agents said many customers were charged as if they lived in second homes unless they previously sent records proving otherwise.

Trouble was, a number of homeowners said they never saw letters asking for records in the first place. They wondered how many people may have never realized they were overcharged if lenders paid for flood insurance through escrow.

The National Flood Insurance Program began in 1968 as a government attempt to provide flood coverage that private insurers historically showed little appetite for offering -- at least at a price homeowners were willing to pay. It was pitched as a way to get homeowners in flood-prone areas to contribute something to their own protection, rather than leaving the government with the politically problematic choice of bailing them out with aid after disasters or letting communities fester in blight.

After catastrophic flooding in the Gulf Coast and Northeast, however, the program reached about $23 billion in debt.

In Congress, budget hardliners including Rep. Jeb Hensarling, R-Texas, have pushed for policyholders to pay more. Speaking at Heritage Action for America's Conservative Policy Summit in 2014, Hensarling said, "I will not be part of any program, policy or act that hastens the bankruptcy of a program that is already underwater."

The Biggert-Waters Act of 2012 passed with bipartisan support, but produced what Democratic sponsor Maxine Waters later called "unintended consequences" -- overnight rate increases approaching 1,000 percent for some homes in Florida and other coastal states. That led homeowners, real estate and business groups and Florida Gov. Rick Scott to protest it was unworkable,and crippling local economies and housing markets.

A 2014 rewrite capped annual rate increases at 18 percent for primary homes, but imposed new wrinkles including surcharges that hit this spring.

The federal government should "collaboratively" share information on flood insurance rates, insurance commissioner McCarty urged in a letter last month. He asked FEMA administrator Craig Fugate for rate data by Dec. 15.

Fugate has not yet provided a formal response to McCarty but there's plenty of time before the requested deadline, a spokeswoman for Florida's Office of Insurance Regulation said.

Brandes has sponsored state legislation designed to clear the way for private insurers to offer more flood policies. U.S. Rep. Dennis A. Ross, R-Lakeland, along with U.S. Rep. Patrick Murphy, D-Jupiter, and others, have pushed legislation at the national level.

So far, private companies have written a few thousand policies in Florida, industry officials have estimated.

The federal program continues to dominate the market, though the private sector has long been involved -- in a way that has sometimes come under criticism. Private agents and companies take commissions and expenses that can run about 30 percent to administer policies through the Write Your Own program. The system has come under renewed scrutiny after the controversial handling of some claims after Superstorm Sandy.

The U.S. Government Accountability Office has questioned whether about $10 billion in fees to private interests since the 1980s has been justified, considering private middlemen assume no risk for paying claims and fees run about double those for crop insurance, for example.

This fall, Florida's policy count has dropped below 1.9 million policies from more than 2.1 million in 2009. Premiums in force rose slightly to $972 million from $953 million, as homeowners with little choice from lenders to buy flood coverage shouldered a heavier burden.

Many with a choice, however, are apparently saying no thanks.

In Palm Beach County's unincorporated areas, NFIP policies dropped 7 percent to below 72,000 over six years. With an occasional exception like South Palm Beach, policy counts dropped nearly across the board in the county's more than three dozen towns and cities.

Brandes says a big part of the problem is a "one size fits all" design of federal policies, and he figures getting better federal data on rates can help.

"It's going to prove to you FEMA's rates are completely mythical," he said.

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