NFIP rates could rise, rebates end for Florida policyholders

by Matthew Glans on May 4, 2012 · View Comments

Florida homeowners purchasing their flood insurance through the National Flood Insurance Program (NFIP) may find their insurance rates increasing next year. According to the South Florida Sun Sentinel, around 2 millions households with NFIP policies could see a rate increase of around 5 percent in the fall. The National Flood Insurance Program, the national flood insurer of last resort, is plagued with debt and is currently being considered for reauthorization.

From the Sun-Sentinel:

“The National Flood Insurance Program, the only source of coverage for 2.1 million Florida households, will raise its rates by an average of 5 percent in October and maybe as much as 20 percent in high-risk areas over the next few years.

Federal officials also have told Florida insurance agents they can no longer provide discounts of up to 15 percent for their customers.

The looming increases are another jolt to home ownership in the state, especially in coastal areas or along inland waterways near sea level, where lenders cannot finance a mortgage without flood insurance. Some of the riskiest areas may even be excluded from coverage, making further development untenable in those parts of the state.

Higher rates are inevitable as Congress lumbers toward revamping the insurance program, which is mired in more than $18 billion of debt.”

Higher rates inform homeowners that their homes are susceptible to catastrophic flood damage. Increasing the cost of living in a flood zone both limits new home construction and prepares homeowners for losses, limiting future disaster assistance covered by taxpayer dollars. NFIP’s rates have been artificially low for years, encouraging unwise construction in high risk areas while rebuilding homes that remain exposed to high flood risk.

These “repetitive loss properties” are one of the biggest concerns NFIP faces. A Congressional report in 2004 found the program costs taxpayers up to $200 million annually, primarily because some properties repeatedly experience flood losses. According to the National Center for Policy Analysis, since 1984 the NFIP has paid out nearly $1 billion for at least 10,000 properties that have experienced two or more losses, with cumulative claims often exceeding the value of the property.

Eli Lehrer, vice president for DC Operations at The Heartland Institute argues in the Sun-Sentinel piece that the rate increases are a necessary step towards making the program financially viable.

“People who receive the most subsidies in risky areas will see big premium increases, probably phased in,” predicted Eli Lehrer, national director of the Center on Finance, Insurance and Real Estate at the Heartland Institute in Washington. “Rates have to go up. The real question is: Will the program be sustainable? It cannot continue at the rates it has now.”

The impact is especially significant in Florida, home to 2.1 million of the nation’s 5.6 million flood insurance policies.

Policyholders in Florida may also lose the rebates they have received in the past on hurricane coverage. Some insurance companies have offered rebates to homeowners who harden their homes against hurricane damage. While mitigation is an important part of hurricane preparedness, these rebates have proven controversial because some homes have used it to bring down their rates even when the improvements made do little to bring down costs. Some homeowners, despite living inland far from the Florida coasts, received rebates for hardening their homes when significant damage was unlikely to occur. Other homes fraudulently received the discounts without making the upgrades.

“The Federal Emergency Management Agency has informed Florida insurance companies that as of Oct. 1 they will no longer be able to provide “rebates,” or discounts that have sliced premiums for some customers by as much as 15 percent.

Ending rebates means that many Floridians will pay more, said Jerry Wahl, president of Statewide Condominium Insurance.

“Times are tough,” he said, “and we believe all businesses should be permitted to conduct operations in accordance with Florida statutes.”

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