Responding to outrage among Gulf Coast homeowners hit hard by Hurricane Katrina, lawmakers in both parties and both chambers are promising continuing pressure on insurers over how they are handling billions of dollars in Katrina claims.
The Multiple Peril Insurance Act (H.R. 920), sponsored by Rep. Gene Taylor (D-Miss.), would expand the federal government’s National Flood Insurance Program to cover multiple perils, including wind damage. The new optional program would offer coverage of wind and flood damage in one policy, without requiring policyholders to distinguish wind damage from flood damage.
The bill has been referred to the House Financial Services Committee, but has not been scheduled for markup.
Dennis Kelly, a spokesperson for the American Insurance Association, said his organization does not support any federal government program that would push out the private insurance market.
“We have a problem with expanding the National Flood Insurance Program to include wind coverage. The problem is you run into the risk of displacing the private market.” Kelly said in an interview.
Robert Hartwig, president and chief economist for the Insurance Information Institute, testified before the House Financial Services oversight and investigations subcommittee last Wednesday that it’s unlikely that NFIP could run a financially sound multiple-peril insurance program. Opponents of the bill fear that a government-sanctioned program that includes wind coverage would suppress rates to make it affordable — and in the process, push private insurers out of the market.
“There has to be honest risk-based pricing, or it won’t work,” Kelly said.
The debate centered on allegations of falsified engineering reports, a State Farm Fire and Casualty Insurance Co. memo that directed insurance adjusters to find water damage but not wind damage, and the industry’s record profits. Rep. Mel Watt (D-N.C.), who chairs the Financial Services subcommittee, plans another hearing on the subject in March.
Hartwig said that insurance companies did not collude as an industry to deny many wind claims in Louisiana and Mississippi. He testified that the industry paid about $40.6 billion in Katrina-related claims.
Mississippi Attorney General James Hood testified there’s a misconception that claimants are rewriting insurance policies. “We’re trying to make them pay for what they did insure. They’re not even paying for what they insured,” Hood said.
He added the escalation in cost to reinsure is making it impossible to rebuild.
According to a recent Congressional Research Service report, difficult factual and legal disputes have arisen relating to the allocation of damage between wind damage, which is covered by private policies, and flood damage, which is not.
CRS found insurers reportedly denied thousands of Katrina wind claims by assigning all Katrina damages to flooding, which is only covered by the NFIP. While policyholder advocates say the insurers are effectively shifting the cost of damage to the federal flood program, insurers counter that they are simply invoking the “water damage” exclusion and “anti-concurrent causation” clause in homeowners’ policies.
Across the Capitol, Sen. Mary Landrieu (D-La.) has introduced the Small Business Disaster Recovery Improvement Act, which would create a short-term, low-interest loan program at the U.S. Small Business Administration to help businesses affected by major disasters.
“After major disasters, small businesses cannot afford to wait for SBA Disaster Loans to be processed,” Landrieu said in a statement.
Sen. John Kerry (D-Mass.), chairman of the Small Business and Entrepreneurship Committee, has pledged to work with Landrieu to pass these provisions as part of comprehensive bipartisan disaster-loan legislation.