Flood insurance reform modeled after Citizens takeout program
Executive | Chief Marketing Officer | Expert Brand Builder | Global Business Driver | 13,000 + Connections
The depopulation program that keeps state-run Citizens Property Insurance Corp. from growing too large should be a model for reforming flood insurance nationwide.
That’s the idea a Florida lawmaker is promoting as Congress faces a Sept. 30 deadline to reauthorize a National Flood Insurance Program burdened by $24.6 billion of debt and ever-rising premiums
State Sen. Jeff Brandes, R-St. Petersburg, is calling for reducing the size of the government-run insurance program by allowing private insurers to take over bundles of NFIP policies. The concept would be modeled after Florida’s depopulation program that reduced the size of state-run Citizens from about 1.5 million policies in 2012 to fewer than 500,000 today.
Under the so-called takeout program, private insurers obtain state approval to take batches of policies away from Citizens, then notify policyholders they’ve been transferred. Customers can opt-out if they choose, but only after receiving a takeout notice.
In an interview Friday, Brandes said a similar approach could be taken with the NFIP program. Private insurers would be encouraged to select bundles of NFIP policies within individual states, he said. Customers would benefit because private insurers could offer lower prices and more options compared to the NFIP’s one-size-fits-all approach that limits coverage to $250,000 for buildings and $100,000 for contents.
Government-run insurers, he said, “shouldn’t be in the market if the private market can get involved.”
Brandes said he has spoken with Florida congressional members about the idea, and plans to go to Washington later this summer as Congress debates NFIP reforms.
Brandes has led flood insurance reform efforts in Florida since his 2010 election. Last week, Gov. Rick Scott signed a bill co-sponsored by Brandes extending rate-setting flexibility and lifting some regulations for private flood insurers.
Brandes’ interest is driven largely by the Tampa Bay region’s vulnerability to catastrophic flooding.
Although all of low-lying Florida is at risk of flooding, the danger is most severe in the Tampa Bay region because of the continental shelf’s wide and shallow slope away from the coastline.
A 2015 study by Karen Clark & Co., a catastrophe modeling firm, concluded that Tampa, because of its shallow sea bed and numerous inlets, is the third-most vulnerable metro area in the nation to costly flooding from a once-a-century hurricane. Such a storm would cause up to $175 billion in losses, the study found.
The Miami area, including Fort Lauderdale and southern Broward County, was the nation’s fourth-most vulnerable, with $80 billion in potential flood damages.
Brandes said he has outlined his idea to members of Florida’s Congressional delegation, including Rep. Dennis Ross, R-Lakeland, as well as to Florida-based insurance executives.
Ross is co-sponsor of one of six flood insurance reform bills pending in the U.S. House. His bill would allow qualifying private flood policies to satisfy coverage requirements of homeowners with federally backed mortgages. Under current law, those borrowers must buy NFIP policies if they are in mandatory flood insurance zones.
The bill would also give states more flexibility to license and regulate private flood insurance.
In an email sent through a spokeswoman on Friday, Ross said he looked forward to talking further with Brandes about flood insurance reforms. He praised Brandes for his “leadership and ingenuity on this pivotal issue,” and added proposals like his “could help lead the way to a thriving private flood insurance marketplace with a limited federal footprint.”
Of the NFIP’s 5 million policies, 1.8 million are in Florida, including 708,000 in the tricounty region. The high concentration of flood policies has made Florida a test market for private flood insurance.
The state’s Office of Insurance Regulation lists 20 private companies selling primary flood insurance — meaning coverage replacing NFIP policies — as standalone products or as endorsements to existing property insurance.
The companies’ flood insurance offerings vary.
Tampa-based American Integrity Insurance Group on Monday announced a new primary flood product designed for non-coastal properties and available only as an endorsement to its existing property insurance customers.
However, TypTap, a spinoff company of Homeowners Choice Insurance, primarily sells standalone policies to customers in mandatory-coverage zones who aren’t already Homeowners Choice customers.
Since its introduction in March 2016 as Florida’s first regulated insurer licensed solely for flood insurance, the company has sold about 5,000 flood policies, said Paresh Patel, chairman and CEO of HCI Group Inc.
Like Brandes, Patel foresees private flood insurers gradually increasing market share while, like Citizens, the National Flood Insurance Program becomes “the insurer of last resort,” he said.
“Ten years from now, the private market and NFIP will co-exist in a competitive landscape,” he said.