Last week Congress passed legislation that would not only extend the National Flood Insurance Program (NFIP) for five more years, but would also allow a series of rate hikes to make the program more financially sound and offset some of its debt.
President Obama is expected to sign the legislation into law. #brokenclock
Had congress not taken action, the program would have sunset at the end of this month and flood insurance would have been rendered unavailable. This could have been catastrophic to the millions of Americans in flood-prone areas whose mortgage lenders require them to purchase insurance coverage for flood.
Thankfully, congress made the right decision in reauthorizing NFIP, as observers believed it would. What is surprising, however, is that a divided congress would also do something fiscally responsible despite it being politically unpopular.
I’m referring, of course, to the provisions relating to NFIP’s rates, which the Florida Legislature may want to take note of.
Currently, and until President Obama signs the changes into law, NFIP has a 10 percent cap on rates, meaning that it cannot raise its insurance premiums by more than 10 percent per year. This inability to raise money has plunged the program into debt, which has required taxpayer bailouts. Even worse, the cheap cost of flood insurance has encouraged development in high-risk, flood prone areas where if the cost of insurance reflected the risk, development would likely not occur.
The new legislation addresses these issues by raising the 10 percent cap to 20 percent. The bill also allows higher rate increases (of up to 25 percent per year) on second homes and properties with repeat claims.
A government-run, taxpayer-backed property insurance company in financial trouble due to a legally-imposed 10 percent cap on rates? Sound familiar?
To Floridians it should, because Citizens Property Insurance Corporation, also a government-run insurance company, has a similar 10 percent cap on rates, which likewise prevents it from charging enough to be financially sound.
Citizens’ 10 percent rate cap has also distorted the insurance market and kept private insurance companies out of the state because they simply cannot compete against a company that is able (and legally required) to charge artificially low rates.
But unlike NFIP, which is backed by the behemoth Federal Government, if Citizens goes broke, it has the ability to destroy Florida’s economy. After a sufficiently bad hurricane season, if Citizens doesn’t have enough money to pay the claims that results from it, just about every Floridian will have to bail it out to the tune of hundreds (or in extreme cases, thousands) of dollars a year for several years through assessments (taxes) on car, renters, homeowners, business, and/or boaters insurance. This abrupt and dramatic increase in the cost of insurance would have a catastrophic effect on the state’s economy.
So if a divided Congress and a Democrat president facing reelection in the middle of a bad economy can agree to enact fiscally responsible reforms to the NFIP, why can’t the Republican-dominated Florida Legislature come together and send a bill to the Republican governor that will do the same with Citizens to avert an economic disaster?
Some statesmen in the Legislature have tried to enact responsible reforms to Citizens, but others have put politics above Florida’s long-term economic health by blocking those efforts. If a divided Congress—CONGRESS!!—can do the fiscally responsible thing, why can’t the so-called “conservative” Florida Legislature?