Christian Camara: Federal government should follow Florida’s lead on flood insurance crisis
Published in the Sun-Sentinel on October 23, 2015
Hurricane Wilma’s 10th anniversary on Oct. 24 came and went without much fanfare. But for Floridians, it’s a marker that divides two very different chapters in our state’s history. Before that date was a two-year period during which Florida reeled under a barrage of seven major hurricanes. Since then it has been a hurricane-free decade for Florida — the longest such respite for the state in recorded history.
In the years immediately following the 2004 and 2005 hurricanes, state lawmakers made decisions that could be characterized as knee-jerk reactions to bring down insurance rates. They expanded state-run insurance mechanisms — Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund — beyond their ability to pay. This foisted enormous amounts of hurricane risk onto the backs of the state’s taxpayers. In short, they did what the federal government has been doing with the peril of flood for decades.
In more recent years, Florida lawmakers reversed many of those ill-conceived reforms to allow the private market to once again assume more of Florida’s enormous hurricane risk. Rates charged by state-run Citizens were unfrozen and allowed to gradually increase to reflect actual risk, and private companies re-entered the Florida market.
Both Citizens and the Cat Fund have taken advantage of the lowest private reinsurance rates in recent memory by farming out portions of their massive risk to the global markets, thus further insulating the state’s taxpayers from bailouts and assessments after a bad storm season.
In short, Florida’s property insurance market has largely stabilized, Floridians on average enjoy more competition and both Citizens and the Cat Fund are for the first time expected to be fully funded without needing a taxpayer bailout.
The National Flood Insurance Program, on the other hand, continues to foist enormous debt and risk onto taxpayers, while limiting consumer choice and competition.
The NFIP, administered by the Federal Emergency Management Agency, writes almost all flood insurance nationally, including millions of policies in Florida. For decades, the NFIP has underpriced its rates, which has discouraged private insurance companies from covering the peril of flood. This has caused a de-facto government monopoly, depriving Americans of a competitive flood insurance market.
A recent study by Karen Clark & Co., a firm that specializes in modeling catastrophe losses, revealed that, with $175 billion in exposed property, the Tampa Bay region is the metropolitan area most at-risk for catastrophic flood in the entire nation. Even worse, it is estimated that half of that risk goes uninsured.
Indeed, if half of the Tampa Bay area is uninsured when disaster strikes, it would take years for affected areas to fully recover. Residents and businesses would be displaced, and the state’s fragile economic recovery would grind to a halt.
With the NFIP facing $23 billion in debt — most of it sustained from storms such as Katrina and Sandy — Congress passed a measure in 2012 to increase rates. A second bill, in 2014, made the pace of increase more modest. It’s a small step in the right direction to help put the NFIP back on solid financial footing. Unfortunately, it also may contribute to somewhat higher uninsured rates in Tampa and elsewhere.
In response, Florida lawmakers passed bills in 2014 and 2015 allowing private insurance carriers to compete by writing flood policies. However, companies have been unable to appropriately price their premiums, because they lack the historical loss data and other information that only FEMA possesses.
Bill sponsor Sen. Jeff Brandes, R.-St. Petersburg, and Florida Insurance Commissioner Kevin McCarty have asked FEMA to release this data to private companies so they can properly set their rates and begin writing flood policies. There are ways this can be accomplished without violating NFIP policyholders’ privacy rights: Many government agencies already share confidential data with private entities on a regular basis by redacting identifying information and/or requiring nondisclosure agreements, for example.
Additionally, FEMA should follow Florida Citizens and the Cat Fund’s example by taking advantage of the lowest reinsurance rates in recent memory. By transferring some of its massive flood risk to the private market, the NFIP could decrease the likelihood or severity of a post-disaster taxpayer bailout.
Florida lawmakers have already taken responsible steps to foster property and flood insurance competition. It is time for the federal government do its part to break the NFIP monopoly, give private insurance companies the tools they need to compete and protect taxpayers from massive future bailouts.
Christian Camara is Florida state director and a senior fellow with the R Street Institute, a free-market think tank.