If a divided Congress can do it, why can’t the Florida Legislature?
Last week, Congress came together and passed legislation that will not only extend the National Flood Insurance Program for five more years, but also approved rate hikes to make the program more financially sound and offset some of its debt.
President Barack Obama is expected to sign the legislation into law.
Had Congress not taken action to reauthorize the NFIP, the program would have sunset at the end of this month and flood insurance would have become 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 agree to do something fiscally responsible despite it being politically unpopular.
I’m referring, of course, to the provisions raising NFIP’s rates.
Currently, and until President Obama signs the changes into law, NFIP has a 10% cap on rate hikes, meaning that it cannot raise its insurance premiums by more than 10% per year. Actually, it’s worse than that, because for older properties built before the introduction of flood insurance rate maps in the mid-1970s, rates haven’t gone up for decades. The “subsidized” rates paid for those properties total only about 35% to 45% of the rates actuaries say they should be paying.
This inability to raise money has plunged the program into debt, which has required bailouts from the U.S. Treasury. 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% cap to 20% and phasing in actuarial rates for subsidized rate properties that are second home or commercial properties, or that have suffered severe repetitive losses or losses that exceed the fair market value of the property.
A government-run, taxpayer-backed property insurance company in financial trouble due to a legally-imposed 10% cap on rate increases? Sound familiar?
To Floridians it should, because Citizens Property Insurance Corp., also a government-run insurance company, has a similar 10% cap on rate hikes, which likewise prevents it from charging enough to be financially sound.
Citizens’ 10% 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 the 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 its claims, 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 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 Democratic 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?
As a Floridian, I am ashamed that some in the Legislature have put politics above Florida’s long-term economic health by blocking responsible reforms to Citizens . If a divided Congress—CONGRESS!!—can do the fiscally responsible thing, why can’t the so-called “conservative” Florida Legislature?
