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Another flood insurance crisis? Washington rancor threatens progress

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Original Publication: Tampa Bay Times, July 13, 2017
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July 14, 2017
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WASHINGTON — Despite the rancor consuming Washington, bipartisan work is happening on an issue that affects Florida more than any other state: flood insurance.
 

But the fight over health care and controversy over Russian interference in the election — not to mention an August recess of some length — threaten to impede that work, stoking renewed fears of uncertainty in the real estate market.

"It's not exactly been the most productive Congress," said Steve Ellis, vice president of Taxpayers for Common Sense, a group that is part of a broad coalition working on flood insurance. "It's getting closer and closer to the deadline."

The decades-old, debt-plagued National Flood Insurance Program expires at the end of September. It covers about 5 million homes and businesses, 1.8 million of those in Florida. If the program lapses, the policies would remain but new ones could not be sold, potentially disrupting sales of homes that carry federally backed mortgages requiring flood insurance.

The House and Senate are weighing proposals that would reauthorize the program by as many as 10 years while making numerous changes aimed at solvency, improving flood maps and boosting mitigation measures, while shifting coverage to the private market.

"There's a balance to begin to phase out subsidized rates but to keep as many people who are at risk participating," said Rep. Kathy Castor, D-Tampa, who is working on the legislation.

The Senate is weighing at least two major bills, one crafted by a bipartisan group of lawmakers that includes Florida Sens. Bill Nelson and Marco Rubio, as well as Massachusetts liberal Sen. Elizabeth Warren. It would extend the NFIP by six years and cap annual premium increases at 10 percent, down from the currently allowed 25 percent maximum increase, which authors saydepresses property values and discourages participation in the program.

"If we want a more sustainable system, the answer isn't to slam homeowners with even higher premiums," said Sen. Bob Menendez, D-N.J.

Rates can range from about $500 to $20,000 depending on various factors, including where the property is located and elevation.

The bill calls for "robust" funding of local mitigation efforts, including low-interest loans for homeowners, and for the use of advanced technology called Light Detection and Ranging to create more accurate flood maps.

It also reduces the commission private property and casualty insurance companies get for writing and serving federal policies. The proposed cut has drawn objections from the industry, which gets a 30.9 percent cut of the policies and would see it drop to 22.4 percent. (A House proposal drops the commission to 28 percent.)

Government watchdogs have criticized the commissions as too generous and say the money could be used for mitigation and better mapping so property owners understand risk.

"It seems attractive to legislators to say, 'People must be profiting off this, let's just make them do it on thinner margins.' The problem with that is it's such a complex product to sell," said Corey Mathews, CEO of the Professional Insurance Agents of Florida.

"The real solution," he added, "is getting the program out of its deficit, getting more people to purchase flood insurance. Just because you're not required to have it doesn't mean you don't need it. If water rolls through your front door instead of a hole in your roof, you need flood insurance or you're not covered."

The national program, which is overseen by FEMA, is $24.6 billion in the red, in large part due to a few catastrophes: Hurricane Katrina (2005), Hurricane Rita (2005) and Superstorm Sandy (2012). Conservatives on Capitol Hill blame subsidized rates, poor management and a market monopoly.

"It is unsustainable," Rep. Jeb Hensarling, R-Texas, chairman of the Financial Services Committee, said during a June hearing. He and others want to see subsidized rates go away at a quicker pace.

The NFIP was created in 1968 after the private market backed away from flood policies due to outsized risk. While Florida now has the most policies, it gives more than it takes — about four times more in premiums than in payouts, according to one study.

As the costs grew over the years, Congress sought a solution and in 2012 passed the Biggert-Waters Flood Insurance Reform Act, which was designed to phase out subsidized rates.

But the consequences were intense, leading to outcry from property owners suddenly facing huge increases. Florida — Pinellas County in particular, which has more than 50,000 properties in the program — was hard-hit, freezing the housing market as subsidies vanished when properties were sold. In 2014, Congress passed legislation delaying the hit, but rising premiums have begun to show up.

Now the NFIP faces reauthorization and one major focus is enticing the private insurance market, reducing pressure on the federal program and spreading the risk. Easing the subsidies is a way to level the playing field, advocates say.

Various proposals would encourage private insurers to write their own policies, including one from Castor and Rep. Dennis Ross, R-Lakeland, that strips away regulatory hurdles and gives states flexibility to individually regulate private flood insurance. A Senate version was introduced in March.

The Rubio-Nelson backed bill does not address the private market but a 10-year reauthorization proposal from Sens. Bill Cassidy, R-La., and Kirsten Gillibrand, D-N.Y., allows for insurers to cover businesses, second homes and "severe repetitive loss properties." It is structured that way to prevent the private market from cherry-picking the most favorable properties.

That bill also allows property owners with grandfathered rates to leave the NFIP but return without losing the previous subsidy. At the same time, some House Republicans complain grandfathering provides an undue benefit to wealthier homeowners, setting up a fight.

Away from Washington, property owners appear mostly unaware of the debate but those who are grow restless.

"It's very frustrating for the entire real estate market to be faced with something like this with no clarity about what direction it's going to go," said Patricia Harrison, president of TBIG Insurance in St. Petersburg. "It's wait and see."

Original Publication URL: http://www.tampabay.com/news/politics/stateroundup/another-flood-insurance-crisis-washington-rancor-threatens-progress/2330226

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