Posted on 22 Jul 2008
Continued calls for federal windstorm insurance offered through the National Flood Insurance Program (NFIP) are misguided and would needlessly displace the private market, disrupt existing state funds, and create a significant burden for U.S. taxpayers, according to the Property Casualty Insurers Association of America (PCI).
A town-hall hearing scheduled for this evening in Bay St. Louis, Miss., is expected to focus on this issue. U.S. Rep. Gene Taylor (D-Miss.), who will host the event, has been the leading proponent of adding wind coverage to the NFIP.
The windstorm proposal is part of the NFIP renewal bill (H.R. 3121) which passed the House last year, but an amendment to add wind coverage to the Senate version of this bill was overwhelmingly defeated, and the White House has pledged to veto any bill containing this provision. If the House and Senate do not pass identical bills for a presidential signature by Sept. 30th, the flood program will expire, placing homeowners in flood-prone areas in serious peril.
“While this wind-coverage proposal is well-intentioned, we believe 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. “Right now, we can best serve homeowners by reauthorizing the National Flood Insurance Program, and by educating insurance consumers about the options that already exist to protect their homes, their families and their financial security. A continued push to add windstorm coverage to the NFIP could jeopardize the millions of Americans the program protects.”
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.
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.
“Although we continue to hear claims that windstorm coverage is unavailable in coastal areas, the fact is that such 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. These state wind pools are doing an excellent job of providing this service to consumers. There is no reason to risk the problematic consequences of adding wind to the federal flood program when wind coverage is already widely available.”
PCI believes that adding wind coverage to the NFIP could create tremendous negative impacts on the national economy and the affordability of insurance coverage. The addition of wind to the flood program could result in numerous undesirable consequences:
· 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 NFIP multiple-peril coverage.
· Such a program could also mean a loss of more than $38 billion in private industry insurance premiums, which insurers must invest to build capital and surplus to cover insured losses. Given that insurers invest heavily in municipal, state, and local bonds, this loss of revenue could result in a further loss of more than $24 billion in bond investments.
· 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.
· Irreparable damage to the private coastal insurance market would result from such a program being enacted; small or startup companies that voluntarily assume policies from state-run insurance plans, particularly in Florida and Louisiana, would be driven out of business. (In Florida alone, these companies account for more than 28 percent of the property insurance market and $1.9 billion in premiums.)
· Availability of reinsurance may also be adversely affected, because if wind exposure shifts from the private marketplace to the NFIP, reinsurers may be less willing to invest capital in the U.S. market.
“Given America’s current economic challenges, there could be no worse time 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, Congress could consider providing a subsidy that would be phased out over time. This surely would make more sense than potentially derailing the renewal of the flood program. Adding wind coverage to the NFIP is a solution in search of a problem.”
PCI is composed of more than 1,000 member companies, representing the broadest cross-section of insurers of any national trade association. PCI members write over $194 billion in annual premium, 40.1 percent of the nation’s property/casualty insurance.