Final answer:
Insurance companies do set flood insurance rates, but state insurance regulators may influence these rates. If premiums are too low, taxpayers or other insurance buyers cover the shortfall. Strict regulatory rules can result in insurance companies withdrawing from a market.
Step-by-step explanation:
The statement that insurance companies set flood insurance rates and coverage rules is partly true; however, it is nuanced by the intervention of government regulators who may attempt to influence rates and coverage to some extent. Insurance premiums must be actuarially fair to maintain sustainability. If they are set too low, other groups, such as taxpayers or other insurance buyers, must cover the shortfall. State insurance regulators sometimes set rules to cap premiums, but this can lead to insurance companies withdrawing from markets if they cannot operate profitably. For instance, in New Jersey and Florida, strict rules led to several insurance providers ceasing operations.