WASHINGTON–A new study shows that adding windstorm coverage to the National Flood Insurance Program could raise the program's potential deficit astronomically, an insurance group warned Congress.
In advance of a House Financial Services Committee hearing on all-perils legislation scheduled for Tuesday, the American Insurance Association released findings by the Towers Perrin consulting firm that in some scenarios "deficits from catastrophic wind events in a single year could be $100 billion to $200 billion, or potentially even higher."
The study was released against the background of the upcoming committee session to consider H.R. 920, legislation introduced earlier this year by Rep. Gene Taylor, D-Miss.
The hearing will be held by the panel's Housing Subcommittee, chaired by Rep. Maxine Waters, D-Calif. The letter was addressed to Rep. Waters; Judy Biggert, R-Ill., ranking minority member of the subcommittee; Rep. Barney Frank, committee chairman; and Rep. Spencer Bachus, R-Ala., ranking minority member of the full committee.
"In our view, the results are troubling, especially to those who are concerned about the ultimate costs of an expanded program to our nation's taxpayers," Mark Racicot, president of the AIA, said in a letter to the House panel.
In his letter, Mr. Racicot, a former Montana governor, added that the deficits from adding windstorm coverage to the program "are likely to be even higher than those specified in the analysis due to expected new coastal construction and inflation."
He also voiced concern that it would be even greater if the program attracts a disproportionate number of high-risk policyholders–as is often the case with government insurance programs.
This would occur, Mr. Racicot said, even though the law establishing the program requires that premiums be based on "actuarial principles."
Mr. Racicot acknowledged that the property insurance market currently is "under stress" in several Atlantic and Gulf Coast states. But the solution, he said, "rests in improving, not displacing, private sector ability to serve homeowners and businesses in the path of potential storms."
To this end, he said, AIA has developed a proactive agenda that includes protective measures, legal reforms and regulatory reforms at the state and federal level.
"We oppose the creation of hurricane 'cat funds' and other government programs that ultimately result in a bail-out from taxpayers living in less-risky areas," he added.
The bill at issue was proposed by Rep. Taylor in response to what he sees as unfair practices by insurers in adjusting claims in the wake of Hurricane Katrina.
Because insurers adjust claims for both their policies and the policies they administer under the NFIP's Write-Your-Own program, Rep. Taylor has alleged that insurers intentionally attributed an unfair share of the damages to flooding, which is paid for by the federal government, rather than to wind damages that would be included in their own policies.
The legislation has supporters on both sides of the aisle, including Rep. Waters and Rep. Bobby Jindal, R-La., who is running for governor of Louisiana.
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