HR 1264 – One policy. One premium. One claims adjuster. Protecting America’s home & business owner. Protecting America’s taxpayers.
“People who played by the rules and expected insurance companies to play by the same rules got screwed.
Congressman Gene Taylor reintroduced bill that would allow federal government to sell wind coverage and Rebecca Mowbray has the story in the Times Picayune.
With the deadline for re-authorizing the National Flood Insurance Program extended until September 30, Mississippi Gulf Coast Congressman Gene Taylor reintroduced his bill to allow the federal government to sell wind coverage Tuesday.
“At this point, anything we can do to relieve people’s costs is going to be better than nothing,” Taylor said. “I remain convinced that the nation can do it and charge less than what the private sector is charging.”
Taylor’s bill was incorporated into the flood program overhaul in the House of Representatives last year, but was not part of the bill that passed the Senate.
By combining coverage for tropical storms, hurricanes and flood in one policy, Taylor hopes to avoid the wind-versus-flood disputes that left homeowners in a jam after Katrina. He believes that such a move would free coastal states from being stymied by insurers who don’t want to sell homeowners policies, and would allow states to spread risk more broadly than through last resort insurers such as Louisiana Citizens Property Insurance Corp.
“The states can’t handle it. Their exposure is enormous, and they can’t spread the risk,” Taylor said. “I know in South Mississippi, insurance is the number one barrier to the recovery.”
Others have proposed different approaches to solving the problem. The Consumer Federation of America proposes turning the flood program to a flood reinsurance program and forcing insurers to sell “all-perils” policies that would cover flood.
Some private insurers have also proposed homeowners policies with flood coverage, but they propose doing so under the eye of a federal insurance regulator rather than states and without any rate approvals. Many insurance trade groups have opposed Taylor’s bill, saying that there are other avenues for people to get wind coverage.
Taylor said there’s nothing in existing regulations stopping insurers from creating multi-peril policies right now by selling flood coverage. “The fact is that the private sector doesn’t want that job,” he said.
Taylor’s bill also proposes to raise the structural coverage limits on the flood program from $250,000 per home to $500,000 for homes or apartment units. It would raise the limits on coverage for businesses from $500,000 to $1 million.
Rates for coastal wind coverage would be at the real costs of the risk, Taylor said.
To help sell the notion to lawmakers from other states, Taylor has created a website with background on the issue, http://www.taylor.house.gov/insurancereform.
“Rates for coastal wind coverage would be at the real costs of the risk, Taylor said”.
Herein lies the problem. If carriers could have those rate levels they would do it. Some would not ,as they would make a business decision that no one would buy at that price level. I commend Mr. Taylor for his efforts. However, I just don’t believe the politicians would allow adequate rates.
The SC wind pool is considered one of the more solvent for SE USA coastal states, The DOI and wind pool director are under fire from some pols about the rising costs of a policy from the wind pool. They don’t like voter complaints even though there is a sound business case for sound rate levels.
I wish it was not so because Mr. Taylor just hit on the solution with the statement above.
supsalemgr
March 4, 2009 at 5:51 am
Again (sigh), the wind pools have to go to Bermuda or Lloyds and buy reinsurance at non-competitive, non-market prices that are 5 to 10 times higher than the expected claims. What the industry calls “actuarial” rates dedicate much more of the premiums to ensure high rates of returns for investors than the portion of premiums needed to pay claims. Katrina did not increase the risk that a hurricane would hit South Carolina but insurers, reinsurers, and the SC wind pool all raised rates in SC a direct result of Katrina. Nothing changed but their capital requirements and the investor demands. Why should the property owners in SC pay higher premiums when their risk and loss estimates did not change? Because investors in Bermuda suddenly wanted 20% ROE instead of 15 to back hurricane reinsurance contracts? The government can easily set wind rates closer to estimated losses and keep them there without the manipulation, volatility and profiteering of the global reinsurance industry.
Brian Martin
March 4, 2009 at 9:15 am
One of the main problems with CAT events are the nature of the payments. The payments are all due at one time which is not predetermined. This makes it hard for the private sector to handle event.
By way of example, imagine if almost every customer of a bank showed up at the same time to remove their deposit. What impact would this have on banking. If it happened in a random fashion on a semi-regular basis what would the impact on banking become?
It would making banking less profitable, more risky and probably impossible to be conducted by private market players. Same with insurance. The very nature of CAT events preclude them from being serviced by the private sector. Why? Because the rate of return on the money is too low when it is liquid enough to be immediately available to consumers. The public interest of fast fluid payment can never be meet by the private sector.
Factor in the water being serviced by the federal government and you come up with a risk nobody can really predict.
steve
March 4, 2009 at 9:03 pm