WASHINGTON--State regulators seeking ways to resolve insurance claims and rates issues raised after Hurricane Katrina are considering a number of options that would bring catastrophe prone states together.

South Carolina Director of Insurance Scott Richardson said that much of the problem facing the insurance industry after Katrina in 2005 can be blamed on unreliable flood maps that had thousands of property owners believing they were in no danger from floods.

Speaking at a hearing of the National Association of insurance Commissioners' Property and Casualty Insurance (C) Committee Catastrophe Insurance (C) Working Group, Mr. Richardson said, "I don't think there's any question in my mind that the flood maps are inaccurate."

The maps sparked massive litigation over how much of claims involved wind or water damage where policy language excludes flooding.

Mr. Richardson saw the wind versus water question as a problem regardless of which side was right.

"Insureds are arguing that they should be made whole regardless of what the policy said," while insurers argue about the validity of contracts language, he said. "The point is that it's a lawsuit," which can extend the timeframe for an insured being able to begin reconstruction by months.

Additionally, he noted that the problem is "not unique to the 2004 and 2005 hurricane seasons" and offered a possible solution that would set a pre-determined allocation system for wind and water damages in hurricane prone states.

"The basic idea is where wind and water both cause damage there would be a pro rata allocation of loss," he said. Such a system, he said, would bring more certainty to the issue, allowing homeowners, insurers and state residual markets to know exactly where they stand before a storm hits. "Everybody would know," he said, "that's the Golden Fleece."

Mr. Richardson said that the potential allocation system would be scaled to reflect the risk of different areas. "The further you are from the water," he said, "you would lower the flood" component of the allocation.

The wind versus water question has also been a plague for the private market, and one company proposed a possible solution to the panel. John Miletti, vice president of government affairs for Travelers appeared before the panel to offer his company's coastal hurricane program that would establish a "Coastal Hurricane Program" along the gulf and Atlantic coasts.

The proposal, he said, was intended as a "starting point" for a conversation on catastrophe issues, and he said it remains a "work in progress" and that Travelers is open to hearing criticism of the plan.

The proposal would provide personal lines coverage in a designated "coastal zone" for damages arising from named storms only. The program would cover personal lines at actuarially sound rates with mechanisms to help consumers adjust to the higher rates and incentives for mitigation efforts.

Additionally, the Travelers proposal calls for the creation of a federal commission to oversee rating and coverage, as well as ensuring a stable regulatory environment between the states. "We need to get some sort of commission together at the federal level," he said. "Let's get the best and brightest folks, let's get them on the commission, and let's get together some kind of uniform approach."

Mr. Miletti said that Travelers' proposal represents a private market solution to the issue, and that the stability and certainty offered by a federally overseen coastal zone would attract more companies and more capital.

However, Mr. Richardson noted a potentially major problem in that it could allow insurers to stay out of the higher risk coastal zone as well.

Resident's along the coast can face significant troubles in terms of availability, he said, and individual states take measures to insure some coverage will be available. As an example, he noted that South Carolina requires that a percentage of any company's business in the state be for properties along the coast. "If they're going to write in Greenville," he said, "you need to make them write in Myrtle Beach."

Special Reports /

NAIC Panel Eyes Wind vs. Water Solutions

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