One of the more annoying messes in the wake of Katrina was, at least among those homeowners who had flood coverage, how claims settlement could be delayed by wind and flood coverage being provided in two policies, each with somewhat different terms.
Some Gulf Coast politicians would have this, as well as many other wind vs. water issues, resolved by expanding the National Flood Insurance Program to provide wind cover as well.
However, in a Times-Picayune blog post made over the weekend, comes word of an idea being circulated by Adam Scales, an associate professor at the Washington and Lee School of Law:
Rather than having homeowners buy two policies — a flood policy from the government and coverage for fire, theft, liability and wind from a private insurance company — Scales advocates making companies sell policies that would provide all the coverage people need and having the government reimburse the companies for flood claims.
The idea is that changing the flood program from a retail venture to a reinsurance program operating behind the scenes would allow consumers to collect one insurance check and start rebuilding their homes and the broader economy while leaving any disputes for the companies and the government to resolve. Mandatory coverage would also solve the problem of not enough people having flood insurance, and would put the program on better financial footing.
“It would push disputes up one level to the wholesale level. Now you would have an argument, say, between State Farm and the federal government about how to deal with the aggregate loss,” said Scales, who began studying the flood program after watching New Orleans fill up with water on television. “It clearly makes the wind-water distinction meaningless to the average consumer.”
Part of that sounds quite a bit like an idea I floated post-Katrina. If coverage exists, then the insured’s claim ought to be paid, with the question of how much of it is wind versus water pushed to the back room for lawyers and accountants to deal with without interfering with the customer’s recovery.
Of course, that would require that some of the differences in coverage terms in flood versus traditional homeowners insurance be smoothed out. For example, the maximum amount of coverage available under the NFIP is lower than what can be obtained in your typical homeowners program. And even if limits were the same, the nature of what personal property or ancillary structures are or aren’t covered can vary between the two contracts.
But we’ve known that updating the NFIP standard contracts to fit modern personal insurance needs is one of the items on the flood insurance reform agenda…albeit further down the list from near-insolvency and questions of rate adequacy….and from the foolishness of expanding the program to cover wind.
