NU Online News Service, July 20, 3:57 p.m. EDT

Adding wind coverage to the National Flood Insurance Program would benefit insurers by flowing premium dollars to them while removing risk and capital costs from the private sector, a House legislator's office said.

Brian Martin, policy director for Rep. Gene Taylor, D-Miss.–who introduced a bill in the House, H.R. 1264, that would add wind coverage to the NFIP–also said the pressure on overburdened state wind pools would be eased by allowing the NFIP to cover wind.

Mr. Martin's comments were in response to a Property Casualty Insurers Association of America (PCI) letter to House staff urging defeat of the bill. PCI's letter contends that $22.1 billion could be lost in premium taxes, income taxes and municipal bond investments from private insurers because of the bill, and that adding wind coverage would add to the NFIP's more than $18 billion in debt.

"The Federal Emergency Management Agency [which administers the NFIP] does not support adding windstorm coverage to the NFIP, citing concerns that this would threaten the long-term viability of the program," the PCI letter notes.

PCI also states that the bill could cost more than 41,000 private sector jobs, resulting in $2.6 billion in lost wages.

But in a written response, Mr. Martin questioned whether the $2.6 billion PCI mentioned would be in premium savings under the Taylor bill. "That would not remove $2.6 billion from the economy. It would allow homeowners to have $2.6 billion to spend in the economy instead of overpaying for reinsurance and sending that money to Bermuda," he wrote.

He said the savings "would allow functioning markets to allocate capital more efficiently than in the reinsurance cartel."

Mr. Martin wrote that the NFIP would pay commissions to private agents, would pay administrative subsidies to the industry to handle the policies, and would pay loss adjustment expenses to the industry to adjust claims, all without the private sector bearing any risk or capital costs.

"This bill would provide a windfall for your industry, with the one exception of the reinsurers, who would be cut off from the ability to gouge state pools at 5-to-10 times more than their expected claims," Mr. Martin wrote to PCI.

He also said the industry could offer wind coverage above the $500,000 limit of the federal program, "essentially writing policies with a $500,000 deductible for the million-dollar-plus houses that are the only ones the private companies want to cover anyway.

"More easy money for the industry," Mr. Martin said.

The American Insurance Association, the Financial Services Roundtable, the National Association of Mutual Insurance Companies, PCI and the Reinsurance Association of America sent a separate letter of opposition to House members noting that the Obama administration does not support the bill. They said the bill "would create a massive and unnecessary new federal program that would likely incur enormous deficits following a hurricane of any significance."

The associations' letter adds, "Nationalizing wind coverage under the NFIP, as this bill proposes, will not resolve 'wind versus water' disputes following a hurricane and would do little to facilitate the resolution of these claims."

Mr. Martin, meanwhile, pointed to support for the bill from the National Association of Home Builders and the National Association of Realtors.

He also referenced a Congressional Budget Office analysis stating that the bill would have no significant impact on the federal budget for each year and no net effect over the next 10 years.

The CBO said, "For this estimate, CBO assumes that actuarially based premiums calculated by the NFIP would generate a sufficient amount to cover future costs. As such, increased claims payments made by the program would be roughly offset by additional premiums, resulting in no net change to direct spending."

The House is expected to discuss the bill Thursday.

Additional reporting by Arthur D. Postal

Special Reports /

Adding Wind To NFIP 'Easy Money' For Industry, Legislator's Rep Says

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