United Policyholders


PCI Makes Case Against Adding Federal Windstorm Insurance to the NFIP

Written by U. S. Insurance News
July 28, 2008


Mixing wind coverage with flood coverage just won’t work, at least on a national level. And there couldn’t be a worse time to push for the idea.

That’s the opinion of the Property Casualty Insurers Association of America (PCI) regarding the persistent call for federal windstorm insurance to be offered through the National Flood Insurance Program (NFIP).

In fact, PCI believes that the windstorm proposal, part of the NFIP renewal bill (H.R. 3121), would displace the private market, disrupt existing state funds, and create a significant burden for taxpayers.

H.R. 3121 passed the House last year, but an amendment to add wind coverage to the Senate version was defeated. President Bush has pledged to veto any bill containing this provision. If the House and Senate do not pass identical bills and present them to the executive branch by September 30, the flood program will expire, placing homeowners in flood-prone areas in danger.

“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,” explained David A. Sampson, president and CEO of PCI. “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.”

More than 99 percent of all coastal properties in the United States already have access to private or state residual markets for windstorm coverage. Only properties in significant disrepair, representing less than 1 percent of the total, are uninsurable through these programs.

“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,” Sampson said.

PCI believes that adding wind coverage to the NFIP could create tremendous negative impacts on the national economy and the affordability of insurance coverage. For example:

  • The cost to the U.S. economy in the form of displaced jobs could be as high as 65,000 if the majority 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 invest to build capital and surplus to cover insured losses. In turn, this loss of revenue could result in a loss of more than $24 billion in bond investments, since insurers invest heavily in municipal, state, and local bonds.
  • The loss of revenue from 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. For instance, small or startup companies that voluntarily assume policies from state-run insurance plans, particularly in Florida and Louisiana, would be driven out of business.
  • Availability of reinsurance could be 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.

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