Empower property owners on flood insurance with bill securing private marketplace

With hurricane season bearing down on Florida, significant flood insurance reform appeared on the horizon with congressional passage of a bill creating an open market for private insurers and options for consumers. Florida drove down a similar road last year by adopting a new law that provides consumers the opportunity to purchase flexible flood insurance on the private market.

The U.S. House bill, passed unanimously in a 419-0 vote last week, contains a pivotal provision eliminating a once daunting obstacle to private flood insurance policies. The legislation ensures those contracts fulfill the federal requirement for flood coverage of high-risk properties that carry federally supported mortgages -- a regulatory roadblock to private market competition.

The Flood Insurance Parity and Modernization Act declares private policies are equal to NFIP insurance in satisfying mandatory policy purchases. Lenders could accept private insurance that satisfy National Flood Insurance Program coverage requirements.

The bill would end the federal government's virtual monopoly on writing policies under NFIP.

By introducing competition in the flood insurance marketplace and removing the federal ban on locally specific alternatives and solutions, homeowners can customize policies and reduce costs. One such consumer option is the ability to purchase private flood insurance that covers only the remaining principal on the mortgage and not the loan's full value.

The new bill moves on to the Senate for what should be easy passage given the support of Republicans, Democrats, environmental organizations, insurance lobbyists, real estate interests and taxpayer associations.

The two Florida congressmen who sponsored HR 2901, Democrat Patrick Murphy and Republican Dennis Ross, introduced the measure in June 2015. Longboat Key Republican Vern Buchanan joined this rare bipartisan effort.

More than 5 million American rely on NFIP policies, which have covered flood damage from storms, hurricanes and other events since 1968. Some 1.8 million of those policies cover Florida properties.

The Sunshine State's coastal properties are increasingly vulnerable to flooding from the rising seas caused by climate change. The Miami Herald reported last year that coastal property worth $69 billion will be at risk of flooding at high tide by 2030, or perhaps sooner. A private marketplace would be able to write policies tailor-made to local conditions.

The House legislation quickly gained traction this year in the wake of disastrous December flooding throughout the Southwest and Midwest. Political motivations aside, this judicious measure should introduce price competition and save property owners on premiums.

The NFIP's subsidized, below-market policies, which undercut the market and impeded competition, were a major target of the Biggert-Waters Flood Insurance Reform Act of 2012. Biggert-Waters slashed subsidies on many high-risk policies, threatening some property owners with unaffordable premiums, but Congress relented due to public pressure and delayed the increases for four years under 2014 legislation that became law.

Biggert-Waters was also intended to expand the private flood insurance market across the country, but some lenders interpreted the law to mean those policies had to be authorized by banking regulators. At least one Florida insurer encountered banks that insisted on NFIP coverage while others were successful in persuading lenders to accept their policies. The Flood Insurance Parity and Modernization Act removes any doubt about that issue.

Coastal communities such as Manatee County were the biggest losers under Biggert-Waters. The new legislation empowers property owners. A private, competitive marketplace best serves their interests.

The modernization act legislation awaits action by the slow-moving Senate, where the bill has languished since its introduction last June. Senators should act soon on this consumer- and market-friendly bipartisan bill.

This story was originally published May 6, 2016 at 12:00 AM with the headline "Empower property owners on flood insurance with bill securing private marketplace ."