A unit of the National Association of Insurance Commissioners has modified a portion of its mega-catastrophe plan that deals with flood risk.

Florida Commissioner Kevin McCarty, who chairs the Catastrophe Insurance Working Group, said that flood coverage would no longer be a mandated coverage in a proposed all-perils catastrophe policy but improved through reform of the National Flood Insurance Program.

The NAIC program consists primarily of state and federal fund backstops for natural catastrophe mega-risk insurance losses and a series of provisions encouraging loss mitigation.

McCarty introduced the plan at the annual winter meeting last month and hopes to gain approval at the spring session in March.

Property-casualty trade group representatives had taken aim at the program for calling on the industry to cover flood risk, which has been the province of the federal government for nearly four decades. Concerns have been raised from insurers' organizations about many aspects of the backstop proposal, which has strong backing from leading personal lines insurers Allstate and State Farm.

McCarty said flood risk was added at the behest of Gulf State regulators whose electorate includes many uninsured residents who have lost their homes to hurricanes and resultant flooding.

Flood coverage efforts, he said, will now center on revamping the federal program and providing stricter language spelling out the coverage homeowners policies provide, and more importantly don't provide.

“Many people were misled into believing they did not need to obtain flood coverage,” McCarty said.

Loss mitigation incentives and mandates will remain a critical part of any catastrophe plan, McCarty said.

Nebraska regulator Allan Wickham said such incentives should go beyond premium credits, but he did not specify what he would add.

This article originally appeared in The National Underwriter P&C. For the complete article, please click here.

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Flood Mandate Out of NAIC Plan

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