WASHINGTON – 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.
“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. The most vulnerable areas to flooding are on the southern tip of the peninsula below Lake Okeechobee and along the Atlantic coast east of Orlando.
A bill already passed by the House would set premiums more in line with actual risks, which would raise rates in some places and lower them in others. The Senate is considering its own version. Both bills would modernize maps used to designate flood zones and determine rates.
Congress must agree on reforms — or pass another extension of the current program – by May 31 to prevent it from expiring. The program has lapsed several times in recent years while Congress remained deadlocked, wreaking havoc with Florida real-estate deals because many cannot be closed until flood insurance is secured.
“There could be a short-term blip if closings are delayed,” said Mike Larson, a real estate analyst at Weiss Research in Jupiter. “It can change what you owe for closing costs. There are some hitches that could come up if you cannot write flood insurance policies.”
The Federal Emergency Management Agency, meanwhile, 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.
A Vero Beach company, Statewide Condominium Insurance, has launched a petition drive, rounding up signatures from Florida residents to pressure FEMA to save the rebates. The goal is 100,000 signatures by Aug. 1.
The company says it has rebated more than $2 million a year to its clients, and some other companies are making similar offers.
Homeowners can purchase flood insurance directly from FEMA. But most buy coverage through insurance agents, who typically deal through an intermediary known as “Write Your Own” companies, which acquire policies from FEMA.
The government gets the full premium and shoulders the risk. But some agents in Florida, making use of state law, rebate some of their sales commissions to attract customers.
A FEMA spokesman said the agency decided to quash rebates because the program is “better served by a system of uniform national pricing that will ensure policyholders pay the same price for the same risk.”
He noted that 48 other states consider rebates “an illegal inducement to purchase insurance,” and that rebates have sparked complaints from competing agents and companies.
FEMA decided that rebates emphasize price over protection and lead to “policy churning,” prompting consumers to buy new or replacement policies year after year that drive up operating costs for the program. And rebates can lead to discrimination among policyholders, FEMA concluded.
But 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.”
Florida holds 37 percent of policies nationwide.
Of all the cities and counties in the state, unincorporated Miami-Dade Countyhas the most policies by far, with 194,982. Unincorporated Palm Beach County has 72,568, Miami has 48,945, Miami Beach 47,523, Fort Lauderdale 43,299 and unincorporated Broward County 34,809.
Inland Florida generally has less coverage, but some parts are still prone to flooding. Orlando has 3,962 policies, and unincorporated Orange County has 11,744. The risk of flooding gets worse along the Atlantic coast, where unincorporated Brevard County has 27,143 policies.