Flood Insurance Deregulation – The (Abstract) Good, The (Obvious) Bad, and the (All-Around) Ugly

As the Biggert-Waters act of 2012 goes into effect, the tragic stories keep coming in, well, a flood –insurance quotes going from $5,126 to $36,584 in three weeks (http://articles.sun-sentinel.com/2013-09-28/news/fl-flood-insurance-rate-hike-20130924_1_flood-prone-florida-flood-insurance-florida-flood), and people preparing to leave their homes (link: http://www.tampabay.com/news/business/banking/flood-insurance-rates-could-increase-for-more-than-21000-hillsborough-homes/2143931) rather than deal with higher rates in coming years.  But is the reality of the end of flood insurance subsidies as bad as it sounds, or is it all hype?  And what does it mean for the real estate market in Florida, and South Tampa?

Passed in July of 2012, and officially the Flood Insurance Reform Act of 2012, Biggert-Waters is probably the biggest news in the housing market since the bubble burst in 2008. It all started with the tragedy of Hurricane Katrina in 2005, which put the public National Flood Insurance Program $18 billion in the hole. Over the next few years, the program stayed unbalanced, and its deficit is now $24 billion. The solution was to cut the large Federal subsidies that had been keeping insurance premiums artificially low in high-risk areas – and that’s exactly what Biggert-Waters does. The consequence (which somehow even the law’s authors claim not to have realized at the time Link: http://www.insurancejournal.com/news/national/2013/09/30/306602.htm) is that premiums for millions of homeowners nationwide are going to skyrocket over the next few years – and a lot of that rise will be centered in Florida.

It’s hard to swallow now – but long-term, the end of federal subsidies is good for the economy, for homeowners, and for the South Florida housing market, for a lot of reasons.  The biggest one is this – the Citizens Property Insurance Corporation, the public entity providing ‘insurance of last resort’ for all these years?  It was never actually solvent – it never had the money to provide the insurance it was promising.  As State Senator Garrett Richter explains here (link: http://www.businessobserverfl.com/section/detail/insurance-promises-we-cant-keep/), a real hurricane catastrophe in Florida would have required that the state borrow to fund damage claims, leaving every state resident making huge debt payments (up to 83% of then-current Citizens premiums) for up to 30 years.  The same problems that plagued Citizens also applied to the Federal Flood Insurance program, which was actually one of the biggest Federal government liabilities this side of Social Security.

So, those in favor of fiscal responsibility should be applauding Biggert-Waters for getting rid of some of the most risky big-government subsidies around.  And ultimately, by letting people know in big, bad numbers just how risky their location is, accurate insurance rates might even save lives.  Finally, the biggest beneficiaries will be people living in lower-risk areas – such as most of South Tampa (See map of high risk areas here. http://tampabay.com/tbprojects/dcloud/dcloud-template.html?doc=799571-map-of-rising-rates-hillsborough-county).  They’ll see little or no change in rates, and their homeowners’ tax dollars won’t be going to subsidize the property of those living in higher-risk areas anymore.

But big-picture politics and abstractions about fairness aren’t much comfort to people facing quadrupling premiums in the next four or five years, and the chances of delaying the law’s biggest effects are narrowing by the day.  Despite a lot of talk about delay, neither the Federal or State legislature have identified any clear way to soften the blow (link: http://tbo.com/pinellas-county/florida-lawmakers-exploring-flood-insurance-alternatives-20131018/).

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