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Some Floridians are about to face a wallop of an increase on flood insurance -- and that’s something Republican Gov. Rick Scott, who is campaigning for re-election, hopes to stop.
Scott wrote a letter to Florida’s U.S. senators, Republican Marco Rubio and Democrat Bill Nelson, urging Congress to delay a planned rate hike on some flood insurance policies and to continue federal subsidies.
For that to happen, the Senate needs to vote on a proposal that the House approved in June. Nelson has indicated he supports a delay, while Rubio’s position has been less clear. The Tampa Bay Times reported in September that Rubio "will continue to work with colleagues on solutions to make the flood program sustainable 'without excessively burdening Florida's families,' spokeswoman Brooke Sammon said."
Florida has already gotten the short end of the stick on flood insurance, says Scott.
"Over the past 35 years, Florida families have paid into the NFIP (National Flood Insurance Program) over $16 billion, four times more than the amount they have received in claim reimbursements," Scott wrote in a Sept. 17 letter.
We wanted to research Scott’s claim about how much Floridians have paid into the program and how much we have received in claims.
Flood insurance reform
The National Flood Insurance Program, run by the Federal Emergency Management Agency, started in 1968. More than 5 million property owners nationwide hold flood insurance, and about 20 percent are subsidized.
After the 2005 storm season -- which included Hurricane Katrina -- the program became indebted to the U.S. Treasury. As of May 2013, it owed about $24 billion. (A recent General Accounting Office report gives a full dissection of the program’s shortcomings.)
In an effort to avoid insolvency, lawmakers passed the Biggert-Waters Flood Insurance Reform Act in 2012. The law requires the program to raise rates about 25 percent a year for certain properties until they reflect true flood risk.
The increases apply to businesses, second homes and homes that have had severe or repetitive losses -- that’s about 50,000 policy holders in Florida. For policy holders who own just one home, the increases won’t kick in until they sell their home, their policy lapses or they have severe or repetitive losses. The increases don’t apply to about 115,000 subsidized condos or multifamily homes or about 1.8 million policies that aren’t subsidized in Florida.
According to a FEMA map, many of Florida’s affected homeowners are in coastal Miami-Dade, Pinellas and Lee counties.
For those facing the flood insurance hike, it’s a double whammy on top of increases for Citizens hurricane insurance.
Florida’s premiums vs. claims
The state’s Office of Insurance Regulation directed us to an issue brief written by the University of Pennsylvania Wharton Center for Risk Management and Decision Processes. (Scott’s office directed us to a 2013 Tampa Bay Times article that cited the Wharton Center’s research.)
The 2010 study showed that in some states policyholders paid far more in premiums than they collected in claims between 1978 and 2008 -- a 30-year stretch. (That's five years fewer than Scott claimed, but as we’ll see, the numbers likely hold true through 2013, for a total of 35 years.)
In Florida, "policyholders paid $16.1 billion in premiums but collected only $4.5 billion in claims reimbursements: that is, premiums paid over time were about 3.6 times the insurance reimbursements," according to the study.
Florida wasn’t alone in paying more into the program than receiving back in claims. Thirteen states had an even higher ratio, and Colorado was the highest. (Florida was tied for 14th with Montana.)
"The situation is reversed in Texas, where flood insurance policyholders paid $4.5 billion in premiums but collected a larger $6.7 billion in claims," the study states.
The study was based on data from the flood insurance program, so we went directly to the program and FEMA to check the data ourselves. We found fairly similar numbers to the Wharton study.
The author of the Wharton study, Erwann Michel-Kerjan, told PolitiFact that his figure of $4.5 billion for claims in Florida through 2008 was higher than FEMA’s of $3.7 billion through mid 2013 because he accounted for inflation. Also, it’s worth noting that many of our big storms were in 2005-06, not in more recent years. So the trend in payments from 1978 to 2008 likely continues today.
We asked Michel-Kerjan if we should expect Floridians to continue paying more in premiums than they receive in reimbursements.
"Keep in mind though that if there is a severe hurricane hitting the state and massive storm surge, the situation could well reverse: Florida might become a net beneficiary of the program, rather than being a net contributor," he said. "This is what happened to Louisiana with Katrina in 2005."
The Tampa Bay Times explained: "Like any other insurance, flood premiums don't reflect real-life events; they reflect risk. With its 1,200 miles of coastline, Florida is still considered more at risk than any other state. Just one major, slow moving hurricane that hits a populated part of Florida's coast could dramatically increase the state's flood claims. And private insurers have been unwilling to provide flood coverage."
Scott said "Over the past 35 years, Florida families have paid into the NFIP (National Flood Insurance Program) over $16 billion, four times more than the amount they have received in claim reimbursements."
A study from the Wharton Center concluded that Florida’s "policyholders paid $16.1 billion in premiums but collected only $4.5 billion in claims reimbursements: that is, premiums paid over time were about 3.6 times the insurance reimbursements." That statistic from the study covered 1978-2008, but it’s likely the trend has continued through 2012.
The only key point that Scott omits is that this imbalance is common: Lots of states pay more in premiums than they receive in claims. A major storm could change that dynamic, and the purpose of insurance is to protect against such an event.
We rate this claim Mostly True.
Gov. Rick Scott, Letter to U.S. Senators Marco Rubio and Bill Nelson about flood insurance, Sept. 17, 2013
University of Pennsylvania Wharton Center for Risk Management and Decision Processes Issue Brief, "Informed decisions on catastrophe risk," 2011
Journal of Economic Perspectives, "Catastrophe economics: The National Flood Insurance Program," Fall 2010
General Accounting Office, "Flood insurance: Implications of changing insurance and coverage limits," July 3, 2013
FEMA fact sheet, "Biggert Waters Flood Insurance Reform Act of 2012," April 2013
FEMA, Nationwide loss statistics related to flood insurance, 1978-July 31, 2013
FEMA, Flood insurance premiums, 1978-2012
Miami Herald’s Naked Politics blog, "Scott pens letter to Rubio and Nelson urging delay in insurance hikes," Sept. 18, 2013
Tampa Bay Times, "The Insurance Quandry," Sept. 14, 2013
Interview, Amy Bogner, spokeswoman for Florida Office of Insurance Regulation, Sept. 18, 2013
Interview, John Tupps, spokesman for Gov. Rick Scott, Sept. 18, 2013
Interview, Erwann Michel-Kerjan, Managing Director, University of Pennsylvania Wharton Center Risk Management and Decision Processes Center, Sept. 20, 2013
Interview, Daniel Watson, FEMA spokesman, Sept. 24, 2013
Interview, Sandra Starnes, Director Florida Office of Insurance Regulation Property & Casualty Product Review, Sept. 25, 2013
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