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Bill Bailey, director of the Hurricane Insurance Information Center

Windstorm Conference speaker doesn’t think Mississippi wind vs. flood suits will succeed

After 2004, 2005 hurricane season, record attendance anticipated in Orlando

The controversy over litigation about wind vs. flood damage and what could happen in the market place and to the industry if Mississippi Atty. Gen. James Hood and attorney Richard Scruggs are successful with their lawsuit will be discussed by Bill Bailey, director of the Hurricane Insurance Info-rmation Center during the Feb. 8-11 Seventh Annual Wind-storm Insurance Conference at the Hilton Walt Disney Resort in Orlando, Fla. Max Mayfield, director of the National Hurricane Center in Miami, will also present conferees with an evaluation of the 2004 and 2005 hurricane seasons and his predictions on the 2006 hurricane
season.

Bailey told Insurance Journal he will take a close look at past, present and future hurricane issues the insurance industry is going to have to deal with.

“I don’t believe Hood and Scruggs will be successful, I don’t believe they should be, but on the other hand in the past I have been surprised by court decisions many, many times,” Bailey said. “Homeowners whose claims have been turned down by carriers who say the damages were caused by flooding, not wind, are adamant that they are going to collect flood damage claims from carriers.

“I am absolutely convinced that if you look at the language Congress put into the purposes and rationale for the legislation, it is clearly spelled out that there is federal preemption. Any attempt by the court to backdoor the insurance industry would be a major disruption and a disabling blow to the Federal Flood Management Program.”

He said a community cannot obtain flood insurance from the federal government until they pass certain requirements and make certain improvements.

“That’s the leverage the federal government has and that private carriers lack,” Bailey explained. “So if the court decides flood insurance claims should be paid by private carriers, they would be dismantling the Flood Management Program.”

Bailey said such a decision would mean flood loss claims would be even worse than they have been.

“The question then is who is going to pay for all that? If the insurance industry is going to be tagged with it, to the extent that we aren’t able to write language to satisfy the courts on how to exclude flood damage, the insurance companies will then have to decide what to do: “Will we withdraw from the market? Totally? Partially? Or to what extent?” Bailey asked.

Changes in the environment

Bailey and Mayfield will discuss changes in the natural environment that have resulted in the unprecedented number of recent hurricanes.

“What does the future look like if a Category One hurricane strikes, who is going to pay for it, and what does that do to the industry in terms of our freedom of action vs. greater regulation?” Bailey said these were all questions he would address during the Windstorm conference.

Scrutinizing underwriting procedures

Bailey will discuss the necessity for the industry to look at how its underwriting is done and procedures need to be changed. He said it is essential to talk about financing. “Who is going to pay for the damages that Mother Nature causes in our country?” he asked.

He said a lot of questions remain to be answered, such as: Should we have a National Natural Catastrophe Fund to which everybody contributes? If so, how do we run it? How do we allocate who is going to pay for it? Should we have regional funds because we have more fires in Phoenix, New Mexico and California than we do in Florida, but on the other hand, we get the hurricanes in Florida and the Southeast. People on the West Coast feel it is an unfair allocation of their insurance claims to pay for hurricanes.

“These are the kinds of issues the industry is going to have to deal with, and at the same time worry about federal involvement,” Bailey said. “It’s the old story about the camel getting its head under the tent. The more responsibility you give the government to become involved and respond to catastrophic events, the more you invite
regulation.”

He said major carriers would rather work their way through problems than have a federally regulated catastrophe insurance pool. Bailey suggested one solution is establishing regional catastrophe funds.

Conference topics

The conference will feature dozens of educational topics, a few of the major ones of interest to the insurance industry are:

“Overview of the 2005 Hurricane Season,” Feb. 9, 8:15 a.m., Mayfield will share insights about the 2005 hurricane season and what to expect in 2006.

“Florida’s Hurricane Mediation Program,” Feb. 9, 9:15 a.m., by Melvin A. Rubin.

“The Return of the Hurricane Panel, Part II,” Feb. 9, 10:45 a.m., Bailey, will moderate a question-and-answer session in which industry leaders will participate and answer what they foresee for the 2006 season.

“The Catastrophic Loss: The Integral Rules of Adjuster and Expert,” Feb. 10, 8 a.m., well-known panelists will discuss how to avoid claim expert bias.

Topics Florida Catastrophe Legislation Claims Flood Hurricane Market