Rep. Gene Taylor, D.-Miss., isn’t letting opposition by major insurance companies keep him from pushing his plan to make wind coverage for properties available through the federal flood insurance program.
Taylor’s proposal — the Multiple Peril Insurance Act of 2009– amends the National Flood Insurance Program to permit homeowners the option of purchasing both wind and flood coverage in one policy. In 2007, the House of Representatives passed Taylor’s bill by a vote of 263-146. But The Senate did not follow the House lead.
Taylor argues that no one can predict with accuracy whether wind or water or both will damage or destroy a property. As long as the insurance industry is allowed to require home and business owners to purchase separate wind and flood policies from different carriers–some private sector and others public– the question of whether wind or water caused the property damage will continue to be a property owner’s financial nightmare, he says.
Taylor, who voted against the Obama stimulus package, thinks the recession could boost his bill’s chances this time around. He contends that his reform would help create private sector jobs without a cost to taxpayers because insurance would be affordable and insurance funds would be available for rebuilding after a storm.
“Apparently, the insurance industry no longer wants to cover people for wind damage in coastal America or will not provide that coverage at a cost that is reasonable,” Taylor said when he reintroduced his bill this month. “Throughout coastal America, property insurance companies have dramatically increased premiums on existing policies, cancelled existing policies, or have stopped writing new policies altogether for our nation’s home and business owners. The Multiple Peril Insurance Act will solve this problem. It will also stimulate the economy throughout coastal America, particularly here in the Katrina area of the nation.”
According to Taylor, this homeowner insurance crisis extends far beyond the states that Katrina directly hit. The crisis extends from the Gulf Coast state of Texas to Florida to the Atlantic Coast including New Jersey and New York.
“As we found out after Katrina and our fellow Texans are finding out now after Ike and Gustav,” Taylor said, “short of home and business owners hiring lawyers and engineers to take their carriers to court, insurance companies routinely and deliberately fail to pay on legitimate hurricane-related wind claims. No one should have to go through this. It isn’t fair to American homeowners and it must end.”
Taylor has even launched a website to build support for his legislation.
But private insurers contend Taylor’s measure would needlessly displace them in the marketplace, disrupt existing state funds and burden taxpayers.
The Property Casualty Insurers Association of America (PCI) says wind coverage is already available either through private insurers or state wind pools. Private or state residual markets for windstorm coverage already exist for more than 99 percent of all coastal properties in the United States. Only properties in significant disrepair, representing less than 1 percent of the total, are uninsurable through these programs, according to PCI.
“While this legislation is well-intentioned, it is both unnecessary and fraught with unintended negative consequences, and it ultimately will not help homeowners in need,” said David A. Sampson, PCI’s president and CEO.
The following coastal states (and the District of Columbia) have a Fair Access to Insurance Requirements (FAIR) plan: California, Connecticut, Delaware, Georgia, Hawaii, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Oregon, Rhode Island, Texas, Virginia, and Washington. Additionally, five states (Alabama, Mississippi, North Carolina, South Carolina, and Texas) have programs designed specifically to provide windstorm coverage, and Florida and Louisiana each have a Citizens Property Insurance Corporation. All of these residual market plans offer either windstorm coverage or property insurance coverage including coverage for windstorms.
“Although supporters of multiperil insurance tell us that windstorm coverage is unavailable in coastal areas, the fact is that wind coverage is universally available for homes in insurable condition,” Sampson said. “Where private coverage currently does not exist, homeowners can obtain wind insurance through state residual market plans.”
PCI believes that federal windstorm coverage could create tremendous negative impacts on the economy.
According to a PCI analysis, the cost to the U.S. economy in the form of displaced jobs could be as high as 65,000 if the bulk of the property insurance marketplace purchased the proposed multiple-peril coverage.
The loss of revenue from such a market displacement would result in more than $1 billion in lost state premium tax revenue and more than $1 billion in individual state and federal income tax revenues, PCI says.
Availability of reinsurance may also be adversely affected, because if wind exposure shifts from the private marketplace to a federal program, reinsurers may be less willing to invest capital in the U.S. market.
“Given America’s current economic challenges, it would be a very bad idea to diminish private investment in insurance markets and wipe out thousands of jobs,” Sampson said. “To assist homeowners who truly cannot afford their wind insurance premiums, we believe Congress could consider providing a subsidy that would be phased out over time. The multiple peril proposal is a solution in search of a problem.”
According to Sampson, the best thing lawmakers can do is to renew the federal flood program as it is without pausing to add wind coverage. The federal program is currently slated to expire this week unless Congress passes a continuation.
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