Dennis Ross

Dennis Ross for Congress

Editorial: Open markets, better service

May
4
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Editorial: Open markets, better service

Editorial from The Ledger:

The death and devastation recently visited upon the other side of the Gulf of Mexico served up a poignant reminder of how treacherous flash floods can be. Heavy storms and high waters killed at least seven people in Houston last month and caused at least $5 billion in damage. Houston's woes are simply the latest in a string of flood-related tragedies that hit the country in recent months.

Since Thanksgiving, floods have stricken Alabama, Arkansas, California, Delaware, Georgia, Illinois, Kansas, Louisiana, Missouri, Nevada, New Jersey, Oklahoma, Oregon, Tennessee and Washington state. Storms have claimed dozens of lives and caused tens of billions of dollars in property damage.

Many of these areas have been, or will be, declared federal disaster zones. That will pave the way for relief money from Washington. State governments surely will help their people as well.

Beyond that, though, victims can recover and rebuild through flood insurance, if they have it.

That's a cautionary tale for the rest of us. But there is a problem.

You can buy flood coverage from an agent just like any other type of insurance policy, yet the only provider is the federal government. And the program has been overwhelmed in recent years.

In February 2015, the U.S. Government Accountability Office reported in its biennial update that the National Flood Insurance Program (NFIP) was $23 billion in the hole as of the end of 2014 — that is, the Federal Emergency Management Agency, which oversees the program, had borrowed that much from the U.S. Treasury to pay off claims. The report said that debt was up from $20 billion two years earlier.

That, according to the GAO, is not how the system is supposed to work. In theory policyholders' premiums fund the NFIP, but, as the agency dryly acknowledged, “the program was, by design, not actuarially sound.”

On top of that, according to the GAO, FEMA spent seven years and $40 million in developing a new claims management system, but scrapped it in November 2009 after officials determined it would not work. As it stands, FEMA, whose financial issues have also resulted from lax oversight of contractors, relies on a 30-year-old computer system to administer the NFIP.

“FEMA is unlikely to generate sufficient revenue to cover future catastrophic losses or repay billions of dollars borrowed from Treasury,” the GAO report concluded. “Congress should continue to consider changes to the program that further address the competing goals of financial solvency and affordability.”

Thanks to U.S. Reps. Dennis Ross, R-Lakeland, and Patrick Murphy, D-Jupiter, Congress has a chance to do just that.

Last week the House passed, by a vote of 419-0, the Flood Insurance Market Parity and Modernization Act, sponsored by Ross and Murphy. The measure would require federal agencies to accept flood insurance policies issued by private insurers, as regulated by state insurance commissioners. The coverage is valid even if the insurer is located in a different state than the property covered by the policy.

The current system is as much underwater, fiscally speaking, as parts of Houston were recently, and so that alone should have been the inspiration for this much-needed innovation. But expanding the market for flood insurance is necessary for two other key reasons, especially for folks from Florida.

First, Florida leads all other states in the number of NFIP policies, claims and payouts.

In 2013, for example, Floridians held roughly 2 million policies, more than three times as No. 2 Texas. More private-sector involvement would surely help reduce rates, which can between $700 and $1,200 a year, and tailor coverage to a wide swath of the state's population. That coverage is likely concentrated along the coasts, but people in low-lying areas with a generous number of local waterways — think Lakeland and Winter Haven — could benefit from having such insurance and having an increased number of providers to purchase it from.

Our second reason for applauding this proposal concerns risk-takers who don't think they need it because they live far from the water. The federal government reports that people who live outside a mapped floodplain file at least 20 percent of NFIP claims, and one-third of requests for flooding-related federal disaster aid. Just because you're not near water doesn't mean you won't be flooded.

One drawback we see is that, especially as coastal areas face rising seas, insurers could leave flood policyholders high and dry to avoid being crippled by claims — much as they did in fleeing Florida a decade ago after two tumultuous hurricane seasons. The federal program would not do that.

But the benefits available from introducing private insurers under the Ross-Murphy bill — more competition, updated claims processing, better contractor oversight, relief for taxpayers — outweigh that. Thus, the Senate should quickly adopt this bill so President Barack Obama can enact it.

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