Nationwide Suggests Wind-Water Policy

National Harbor, Md.

Nationwide Insurance Company is proposing the creation of a government backstop for insurers willing to offer a homeowners policy for both wind and flood coverage.

Discussing their concept at a session of the National Association of Insurance Commissioners 2009 National Fall Meeting here, representatives of the insurer heard both praise and criticism from regulators.

Currently flood coverage is only available from the government's National Flood Insurance Program, and proposals in Congress for the NFIP to also provide wind coverage have stalled.

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 said.

As an added twist, 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-versus-water debate.

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.

Under Nationwide's "Enhanced Homeowner Insurance Policy," 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 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.

The Treasury Department, under the Nationwide scheme, would reinsure the flood portion, with insurers paying a premium, and would also regulate the combined 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 Mr. McRaith both questioned why people would buy this optional policy when they already do not buy flood coverage. "You'll have no better luck selling it than anyone else," Mr. Richardson said.

Mr. McRaith said even though the coverages would be under one policy, a consumer currently has the option to buy both coverages at the same time through their 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.

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