Along the Mississippi Gulf Coast, home and business owners are so concerned about insurance rates and availability that they are using e-mail alerts and YouTube videos to drum up support for national multi-peril insurance.
“Horror stories abound,” says an alert from Coastal Community Watch in Bay St. Louis. “One corporate source here noted that their premiums had risen from $650,000 a year to over $6 million a year. Homeowners and small businesses are being squeezed out with budget busting rates, even for non-storm related risks like fire and liability. The crisis is a national one. Most Americans live within 50 miles of a coastline. Even those who live in the country’s heartland are affected when the economy in coastal areas suffer.”
The e-mail then directs people to addresses for U.S. senators to send an e-mail urging them to support insurance reform and multi-peril coverage. And it concludes with a link to a YouTube video of Rep. Gene Taylor (D-Miss.) and other Coast leaders talking about why insurance reform is so important.
But although Taylor’s multi-peril bill passed the U.S. House by a wide margin, there appears to be little interest in the Senate.
“I don’t think there is any doubt that the multi-peril insurance is stalled and laboring on death, actually,” says Tom Quaka, president of Briarfield Insurance in Jackson.
“The momentum for that has been lost especially with Sen. (Trent) Lott’s (R-Miss.) resignation from the Senate. The insurance industry, obviously, didn’t embrace it in the first place. The industry is waiting for some of the emotion of the storm to pass because that was what was carrying it to the point it got. Although some long-term remedy is needed and required, perhaps the initial solution wasn’t very well thought out.”
Quaka says the bill would have transferred risk either to the corporate venue, the insurance industry or the public venue through taxation. Once people who don’t live in disaster prone areas realized it would increase their premiums and taxes, support for the bill evaporated.
“Any government subsidies are temporary measures,” Quaka says. “Eventually we will have to get weaned off that source and private enterprise will fill the gap. The federal government can help, but more with measures like the terrorism reinsurance mechanism put in after 9-11. Private industry can fill the void and will fill it more quickly if they have the backdrop of some federal reinsurance much like that enacted for terrorism after 9-11.”
While it is a complicated issue, deciding how to solve the insurance crisis in places like the Mississippi Gulf Coast, Quaka says it isn’t a good idea for government to just come in and take the place of private industry.
Insurance Commissioner Mike Chaney says Gov. Haley Barbour and U.S. Sen. Roger Wicker (R-Miss.) are on board supporting multi-peril insurance. But Chaney doesn’t know where the federal legislation will end up.
“It seems the Congress wants multi-peril to have more caps and limitations,” Chaney says. “In that same light, we’re seeing the administration pushing more people to enter the National Flood Insurance Program (NFIP), which helps spreads the risk. But what we are seeing is this. People who bought flood insurance after Katrina and kept it for two years are now cancelling. We are seeing a decrease in the number of NFIP policies of 15% right now. People must understand they need to get flood insurance. I just can’t express how important it is.”
The National Association of Insurance Commissioners (NAIC) has said that while better coverage is needed for consumers, Taylor bill’s focus is too narrow.
“Consumers expect all-perils coverage and, in some cases, they incorrectly believe they have it,” says Sandy Praeger, president of the NAIC. “We think Rep. Taylor’s proposal should be considered in the broader context of natural catastrophes, and we offer some alternative concepts to consider.”
The multi-peril insurance bill, H.R. 920, would allow the National Flood Insurance Program (NFIP) to offer wind coverage. NAIC believes this approach would help resolve potential conflicts between consumers and insurers regarding the cause of damage to their homes during a hurricane: i.e., wind from the hurricane and/or water damage from a subsequent flood.
“However, Rep. Taylor’s solution would move the line of contention to other perils, such as fire or earthquake damage,” says Praeger, who suggested the NFIP could be restructured to function as a reinsurer. By doing so, any debate over what might have caused the loss would be between the insurer and the NFIP, not the consumer.
“Alternatively, the private market could offer all-perils coverage and be supported by a federal backstop or credit line that would cap the industry’s share of such catastrophic losses — helping insurers manage their claims-paying ability while keeping insurance affordable for consumers,” she says. “These proposals could be structured to leave the private market as the first line of defense, while recognizing the roles of state and the federal government in managing natural disasters. Regulators and legislators need to work together to develop a better product that closes the gaps in coverage and encourages personal responsibility.”
In late January, a report was released by the General Accounting Office (GOA) that Taylor says was evidence of the importance of multi-peril insurance.
“I applaud the GAO for confirming that insurance companies have an inherent conflict of interest when they are allowed to determine whether to assign damages to their own wind insurance policies or to the federal flood insurance policy claims,” Taylor says. “The report reinforces my proposal to give homeowners the option to buy wind and flood coverage in the same policy.”
Taylor says the volatility and uncertainty of the coastal insurance market are the biggest obstacles to recovery on the Gulf Coast. The GAO’s findings include these major points:
• A conflict of interest exists when insurance companies are responsible for determining both the extent of the flood damage that NFIP must pay and the extent of the wind damage that the insurance company itself must pay;
• NFIP cannot determine the accuracy of flood claims payments on properties that were subject to both high winds and flooding, because FEMA does not collect any information on wind claims and does not require companies to explain their procedures for distinguishing between wind and flood losses;
• Property owners with separate homeowners, wind and flood insurance policies cannot know in advance whether all their damage from a hurricane will be covered because of differences in the policy limits. The uncertainty is increased because NFIP cedes control of the damage determination to the insurance company despite a vested economic interest in maximizing the flood claim and minimizing the wind claim;
• Legal disputes between wind and flood coverage have increased because of insurance companies’ anti-concurrent causation clauses that attempt to exclude coverage of wind damage if flooding contributed to the loss.
Contact MBJ contributing writer Becky Gillette at firstname.lastname@example.org.