National Insurer Wants to Include Flood Coverage in Home Policies

One of the nation’s largest insurance companies is lobbying Congress for permission to sell policies that cover damage from both wind and flood water, a plan billed as a way for insurers and homeowners to avoid costly litigation after disasters such as Hurricane Katrina.

Nationwide Mutual Insurance Co. also says that expanding its homeowner policies to include flood coverage could save taxpayer money by reducing costs for the federally subsidized National Flood Insurance Program.

Nationwide’s plan, which would require congressional approval, calls for the Columbus, Ohio-based company to sell flood insurance at the same price as NFIP policies. However, policyholders would have the option of buying flood coverage beyond the limits of the national program.

Also, unlike other homeowner rates, prices for Nationwide’s expanded policies would be exempt from state regulation.

In the aftermath of the August 2005 storm, thousands of property owners in Mississippi and Louisiana without flood insurance sued their insurers for refusing to cover damage from Katrina’s wind-driven storm surge. “We see this (plan) as a viable alternative to much of the litigation that occurred post-Katrina,” said Craig Zimpher, Nationwide’s vice president for government relations.

More than a dozen members of Congress were briefed on the plan. Rep. Gene Taylor, D-Miss., a fierce critic of the insurance industry’s handling of Katrina claims, is one of the lawmakers briefed on Nationwide’s plan. Brian Martin, Taylor’s policy director, said the proposal could benefit consumers if other insurance companies follow Nation-wide’s lead and create a competitive market for flood coverage.

Martin said the plan should include federal government regulation and oversight so that insurers don’t “cherry pick” policyholders and exclude properties at the greatest risk of flood damage.

Taylor, whose Bay St. Louis, Miss., home was destroyed by Katrina, sponsored legislation that called for expanding the NFIP to include optional wind coverage. The House adopted the proposal, but the Senate rejected it in May.

Nationwide said the plan would be voluntary for its customers. The U.S. Treasury Department would regulate and “reinsure” Nationwide’s flood coverage. The cost of reinsuring Nationwide’s policies would be paid for in part by a percentage of the flood premiums collected.

While the price of Nation-wide’s flood coverage would mirror the cost of NFIP policies, prices for the wind, theft and fire portions of the expanded policies wouldn’t be subject to government price controls, the company said.

Nationwide spokesman Joe Case said the plan isn’t designed to be an end-run around state regulation, but policyholder advocates said it would undermine state officials’ authority to review rates and approve the terms of insurance contracts.

“The current system of state-based regulation of the insurance industry is far more effective at protecting consumers than a new federal bureaucracy, subject to politics,” said Amy Bach, executive director of the United Policyholders advocacy group.

“The proposal could be viewed as a win-win-win situation for consumers, for insurers and for the government,” said Robert Hartwig, president of the Insurance Information Institute in New York. “Katrina inspired a lot of innovative thinking by insurers and public policy-makers, and this is one example.”

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Joint Wind, Flood Policy at a Glance

Nationwide Mutual Insurance Co. is lobbying Congress for permission to allow insurance companies to include flood coverage in homeowner policies. • Hurricane Katrina inspired Nationwide’s plan to merge wind and flood coverage into one policy. Insurers paid for billions of dollars in wind damage from the August 2005 hurricane, but thousands of policyholders sued insurers for refusing to cover damage that the companies blamed on storm surge. Bringing the two forms of coverage under one policy, Nationwide said, should ease confusion and help avoid costly litigation spawned by wind versus water disputes.

• Details of the plan are pending, but Nationwide has posted an outline of the proposal online at www.nationwide.com/news
room/ehip-proposal.jsp. • Nationwide would sell flood insurance at the same price as NFIP policies, but policyholders could buy flood coverage beyond the limits of the national program. Prices for the expanded policies would be exempt from state regulation. The U.S. Treasury Department would regulate and reinsure Nationwide’s policies.

• Most insurers won’t comment on a competitor’s products, but the plan could appeal to other insurers. An aide to Rep. Gene Taylor, D-Miss., believes the proposal could benefit consumers if other companies follow Nationwide’s lead and create a competitive market for flood coverage.

• Nationwide is drafting a formal plan, but a bill has not been filed yet. The company has briefed more than a dozen members of Congress on the concept.

Source: The Associated Press

Topics Carriers Legislation Flood Homeowners