If Hurricane Katrina and recent Midwest flooding have taught us anything, it is that the market desires homeowners insurance that covers both flood and wind damage in one policy.

Since 2005, the private insurance industry has paid a record $40 billion for covered Katrina claims. The National Flood Insurance Program paid $20 billion.

Yet even with this record-setting payout by the industry, a dramatically different approach is needed to improve future responses by eliminating the unnecessary disputes and delays caused by having multiple policies for the same home.

At the heart of Katrina's aftermath, and now in the wake of recent Midwest flooding, there is an ongoing public discourse driven by the reality that many Americans who need flood coverage have chosen not to buy the product. Indeed, the Insurance Information Institute recently reported that less than 20 percent of homeowners have purchased flood coverage.

A standard homeowners insurance policy doesn't cover flooding from tidal waves or storm surges. Even though the courts have upheld long-standing flood exclusions in insurance policies after Katrina, there is clearly a desire in the market for protection from wind and water damage in one policy.

It's an issue our elected officials are struggling with even now as the U.S. House and Senate work to reform the National Flood Insurance Program.

As a major property-casualty insurance company, we have an obligation to put ideas on the table to solve our customers' problems and provide them with the insurance they want and need. That's why Nationwide Insurance is proposing that insurers be authorized by the federal government to sell an innovative homeowners policy that would help avoid future disputes over whether damage was caused by wind or water.

The "Enhanced Homeowners Insurance Policy" would allow private insurers to combine the wind insurance coverage of a traditional homeowners policy with flood insurance coverage similar to that now offered by the NFIP into one home insurance policy.

Under the proposed coverage, the private insurance market would bear the primary responsibility of paying claims, with the federal government acting as a reinsurer and regulator.

Even though property owners have long been able to acquire flood coverage through a separate policy sold by the NFIP, Katrina underscored the reality that many homeowners chose not to buy this separate coverage. For those who did, disputes still arose between them and their insurers about whether the damage to their home came from hurricane wind or from flooding that came along with the storm.

Also, for those who purchased flood coverage, there were gaps between coverage caps and the cost to repair the damage.

We can avoid future "wind versus water" disputes by folding flood coverage into a new, enhanced homeowners policy that insurers can voluntarily sell and homeowners can voluntarily purchase. Neither would be mandatory.

This enhanced policy would be regulated by the U.S. Treasury Department, which would also reinsure the flood portion to make sure that coverage was financially feasible. Here is how Nationwide believes we can get this done:

o Enact federal legislation to authorize insurers to sell this enhanced homeowners policy under the regulation of the U.S. Treasury Department.

o Have insurers sell the enhanced policy at rates they individually determine in the market, but require them to price the flood portion of each policy at exactly the same price that the NFIP would charge for stand-alone federal flood insurance for the same home. Insurers and customers could arrange for even greater amounts of flood coverage at market prices.

o Require that an insurer's flood coverage premium not be treated as income, but rather that it be placed in its own separate account that would grow through Treasury-approved investments.

o Strictly limit each insurer's use of its special account for the payment of flood claims and related expenses, including the purchase of reinsurance from the Treasury Department.

o Have the Treasury Department's reinsurance program reimburse each insurer for those flood-related claims costs that exceed the amount of money in that insurer's special account.

If Congress were to act to make this enhanced home insurance policy an option, the result would increase both customer choice and customer confidence.

The new policy would provide an additional option for customers to consider as they make key decisions to protect their home. Existing coverage options would also be available.

Consumers could still buy a policy that does not cover flood damage, or a stand-alone flood policy from the federal flood program. However, for homeowners who desire comprehensive coverage, this policy would provide it for them.

The availability of this new, enhanced coverage would also aid in building customer confidence in the insurance products they purchase.

For the benefit of all, Congress should act to make this new coverage option available as quickly as possible.

Special Reports /

Should Homeowners Be Sold One Policy?

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