South Florida homeowners, facing steadily rising flood-insurance costs, may be in line for a break, courtesy of the state.
The state legislation is designed to create a competitive, private-insurance market in Florida. Homeowners also could save by choosing to cover as little as the remaining balance of their mortgages.
“This is really an original idea on how free-market insurance should be bought and sold in Florida,” said Sen. Jeff Brandes, R-St. Petersburg. “The two hallmarks of our bill that drive down rates are flexibility in coverage and competition in the marketplace.”
Costs will fall, Brandes said, because homeowners will be able to buy the amount of insurance they can afford, insurers will be taking on less risk and they’ll be competing to write flood policies.
Despite Congress‘ vote Thursday to limit premium increases to 18 percent a year, Brandes says his measure is necessary to bust the federal monopoly on flood insurance and to ensure long-term affordability of policies.
Right now, property owners can buy flood insurance only from the Federal Emergency Management Agency. Its National Flood Insurance Program, facing soaring debt, underwent a major reform in 2012 that was expected to lead to skyrocketing rate increases of as much as 900 percent for some homeowners.
More than 2 million homes in Florida are insured through the federal program. Of those, more than 372,000 are in Broward County, more than 162,000 in Palm Beach and more than 368,000 in Miami-Dade.
Skeptics are doubtful that new insurers would flock to the Florida market and doubt Brandes’ proposal would drive down rates.
Chris Heidrick, who owns Heidrick & Co. Insurance agency in Sanibel and sells policies in South Florida, wonders if it’s just “a feel-good bill.”
“What happens at the state level, it certainly can’t hurt,” Heidrick said. “But the changes in federal law … are really what’s going to make the difference.”
Brandes’ bill (SB 542), poised for a final vote on the Senate floor, would allow homeowners to limit coverage to the remainder of their mortgages.
That’s a sticking point for Rep. Ed Hooper, R-Clearwater, who is sponsoring a bill (HB 879) similar to Brandes’ that calls for more coverage. Hooper said he worries about homeowners unable to afford to rebuild if they suffered a total loss because of flood damage.
“You now have a damaged house sitting on a good street in a nice community with no repair, no chance of being repaired and unable to sell,” Hooper said. “I don’t want to start a process where that could start a decline in a street, or a community, or a beach. Nobody likes an eyesore in their community.”
Brandes counters that “very, very, very few homes see catastrophic floods.” And he notes that homes without mortgages aren’t required to carry flood insurance.
Brandes’ bill requires coverage to meet federal lending and regulatory standards and that should appease lender concerns, said Anthony DiMarco, the Florida Bankers Association’s executive vice president of governmental affairs.
“We’re supportive of the concept; we’re supportive of the bill,” DiMarco said. “Hopefully this will help the real estate market, and this will help people stay in their homes.”
Even so, insurance companies are not lining up to offer private flood insurance in Florida, said Jeff Grady, president and CEO of the Florida Association of Insurance Agents.
Agents would prefer to “stick with the federal program and continue to make that work,” he said, adding they are supportive of the reforms being made by Congress.
“It is a guaranteed claims payment from the federal government if things go bad,” Grady said. “The private market is very undeveloped, it’s not stable, and some of the carriers’ financial strength is questionable as compared to the federal government.”
Thursday’s vote in Congress would make the pending rate surge more gradual and manageable, capping annual premium increases at 18 percent for primary residences.
Brandes said, “18 percent is better than 900 percent. But for the long term for Florida, we have to control our own destiny regarding flood insurance.” Over time, even an 18 percent increase would take rates too high, he said.
Despite the differences between the Florida House and Senate bills, Hooper said he’s confident the two chambers will find common ground.
“We’ll figure out how to come to some sort of an agreement,” Hooper said. “I don’t think we’ll leave Tallahassee without some flood insurance legislation sent to the governor’s desk. It’s too important.”