Nationwide Suggests A Treasury Backed Wind-Water Policy

A combined wind and flood policy would avoid disputes that have arisen over how much damage is compensable under a wind or flood policy when a dwelling is damaged by both wind and flooding.

Nationwide is proposing that insurers who offer the combined coverage would have reinsurance provided by the U.S. Treasury Department.

At the NAIC's Property and Casualty Committee meeting, several regulators, and a prominent consumer advocate, commended Nationwide for proposing a solution to the wind vs. water debates.

But those on the committee who offered feedback agreed that Nationwide's plan, as currently structured, would do little to improve the current landscape, and would even add another layer of government complexity.

The plan is called the "Enhanced Homeowner Insurance Policy" (EHIP). According to Nationwide's presentation, wind and flood coverage would be brought under one homeowners policy, which would be voluntary and compete with traditional homeowners policies and flood policies provided by the National Flood Insurance Program (NFIP).

The policy "would be made available pursuant to federal law," but would be priced in the marketplace by individual insurers, according to Nationwide.

Insurers would price wind coverage as they currently do, and would model pricing for the flood portion after the current method used by the NFIP. Nationwide representative Craig Barrington said insurers would not make a profit from the flood portion.

Congress is currently debating elements of the NFIP, which will expire unless enabling legislation is passed by month's end.

The Treasury Department, under the Nationwide scheme, would reinsure the flood portion, with insurers paying a premium, and would also regulate the EHIP policy.

Property and Casualty Committee Chair Michael McRaith questioned the "unexpected detour" to the Treasury Department when the current NFIP is structured in the Department of Homeland Security and overseen by the director of the Federal Emergency Management Agency.

South Carolina Insurance Director Scott Richardson and Director McRaith both questioned why people would buy this optional EHIP policy when they already do not buy flood coverage. "You'll have no better luck selling it than anyone else," Director Richardson said.

Director McRaith said even though the coverages are under one policy with EHIP, a consumer currently has the option to buy both coverages at the same time through his or her insurance agent.

Birny Birnbaum, executive director of the Center for Economic Justice, complimented Nationwide's effort, but said the plan takes an "existing illogical system" and "adds layers of complexity." He said the plan does not address the key problem of consumers being told or believing they don't need flood coverage.

"Consumers need a comprehensive policy," Mr. Birnbaum said, suggesting that insurers should offer an all perils policy with an underlying federal program to kick in for mega catastrophes.

Director McRaith said Nationwide is at least providing a jumping off point and asked for comments from interested parties by Oct. 31.