A bill signed into law by Gov. Rick Scott has opened the door for more private companies to offer flood coverage in Florida, but so far insurers don’t appear to be in a hurry to start writing policies.
The panic last fall as federal flood premiums were escalating for many homeowners, especially in the Tampa Bay area, drove legislators to move quickly on a bill designed to make way for private sector competition.
Since then, Congress moved to delay the rate hikes and a handful of private companies outside the conventional market began offering coverage at more affordable rates, relieving much of the immediate demand from struggling homeowners.
But with companies investing millions of dollars in new digital technology for modeling coastal storm surge and floods to more accurately assess risk down to individual properties, the long-term prospects for future private market competition are strong, insurers say.
“Where the insurance industry is going is an individual flood risk score for each home based on elevation and construction,” said Locke Burt, president of Ormond Beach-based Security First Insurance.
That will be a gradual process, but the release of state-of-the-art computer modeling programs this fall will give insurance providers a good place to start.
“No pun intended, they’re going to put their toe in the water and they’re going to see how it works,” Burt said.
Although there are roughly 8 million homes in Florida, only about 2 million of their owners buy flood insurance, primarily those who live in risky flood zones and are required to buy the policies as a condition of their mortgages, he said.
Those who don’t buy flood insurance wrongly assume their homeowner’s policy covers it, believe it to be too expensive or think they’re not at risk because their property is far away from water.
The theory among some private insurers is that more people would opt to buy coverage if companies came up with more precise risk pricing than the Federal Emergency Management Agency, which has been criticized fiercely for using outdated flood mapping techniques that lump large areas together.
FEMA officials would like to see the flood risk spread into the private sector because the government program has fallen into severe debt in the past decade due to multibillion-dollar storm claims.
A bill championed by St. Petersburg Republican Sen. Jeff Brandes, and recently signed by Scott, gives private companies leeway in developing new kinds of flood coverage to compete with FEMA.
Lloyd’s of London and other major insurers already offer basic coverage to Florida consumers, but their rates aren’t subject to the Office of Insurance Regulation like other forms of insurance, nor are claims guaranteed to be paid by the state.
The new law encourages companies to develop policies in what’s known as the admitted market, which is more heavily regulated, but they would be allowed to set rates each year without state approval until October 2019.
Since the federal government has set the majority of policy rates for decades, companies will need time to review claim history and new computer modeling data before they decide how to accurately price risk.
“We estimate 20 percent of the federal policies are priced too high,” said Jay Neal, president of the Florida Association for Insurance Reform.
There are also matters of federal law that must be resolved, including a bill in Congress that would require lenders to accept private insurance as an alternative to the federal program when issuing federally-backed mortgages.
“There’s been a lot done to make it as easy as possible for the market to respond. Now it’s just a question of whether or not they will, and that remains to be seen,” said Richard Koon, deputy commissioner of the Florida Office of Insurance Regulation.