Recent months have seen a spate of trouble in the world of
windstorm insurance for homeowners.
In Florida, insurance company State Farm has announced plans to
pull out of the state, after state regulators refused to allow a
premium increase of more than 40 percent. State Farm Florida
executives say they're
losing money in the state, but critics say the Florida State
Farm unit has been "cooking the books" by pulling profits out of
the state for its parent company for years, while using its
in-state low balance sheet to press for continual rate increases
Regulators Question State Farm's Dire Claim, by Paige St.
John). The current pull-out plan, cynics say, is just the company's
effort to squeeze out yet another massive rate increase. In an
Alabama Press-Register editorial, columnist David McGrath
likens the insurance company's conduct around the Gulf to the
tactics of a poker player who always leave the game when he's
But Florida Governor Charlie Crist has evidently decided to
call State Farm's bluff and let them leave — or rein in
their rate request. Current negotiations between Florida and State
Farm center around whether State Farm will be allowed to continue
its other, highly profitable, insurance lines in Florida —
such as automobile insurance.
In North Carolina, there's a smaller but similar dust-up.
Coastal builders and real estate professionals are joining with
coastal homeowners in opposition to a state-proposed rate
re-structuring that will sharply increase premiums for homeowners
along the coast, while reducing rates for inland owners. For more
on that story, see Wayne Faulkner's article, "Lawmakers
Join In Fight Against Insurance Hikes," in the Wilmington
Star-News and Sue Book's report, "Coastal
Insurance Rates Draw Concerns," in ENC Today.
And in Texas, where the state-backed coastal insurance pool has
paid out close to a billion dollars in Hurricane Ike-related
claims, homeowners are now complaining that they can't get their
hands on that money to rebuild — in part because mortgage
companies, who are co-beneficiaries of the policies, won't let go
of the funds. The Galveston News covers that that development in
two stories, "Thousands
Still Awaiting Windstorm Payouts
," by Laura Elder, and
Companies Holding Insurance Checks
," by Leigh Jones.
All this action takes place mainly on the state level. States
have the authority to regulate homeowners' insurance, and where
private-sector insurance companies won't provide coverage for many
high-risk coastal properties at the state-mandated rate — as
in Texas — the state often becomes the insurer of last
In the view of one major insurance company, The Travelers, it's
time to take state-by-state insurance, and insurance regulation,
out of the picture. For several years, Travelers CEO Jay Fishman
and his fellow company executives have been pushing a comprehensive
reform proposal for the industry, based on a Federal
re-organization of the market — not for most routine
insurance claims, but strictly for the potentially overwhelming
damage caused by "named storms" (hurricanes and tropical storms).
Fishman was back in action pushing the plan in Mississippi last
month, along with Travelers execs Eric Nelson and Joan Woodward
Pitches Insurance For Coastal Areas
Travelers has a website
explaining the plan
, including a PDF of Jay Fishman's Miami
Herald editorial from September, 2008, "Let's
Work Together to Resolve the Insurance Crisis
Bringing order to a troubled market. Travelers
Insurance CEO Jay Fishman's proposal would divide the Atlantic and
Gulf coasts into four zones with Federally-regulated rates and
Federal re-insurance backing, strictly for insurance against wind
damage in "named storms" (tropical storms and hurricanes).
As Fishman explains it, the proposal rests on four main
elements. The first, "regulatory stability," would be achieved by
replacing state regulation of windstorm insurance with four
regional, federally-run regulatory zones from Maine to Texas (see
map). The second, "pricing transparency," would require all
insurers to base their premiums on federally approved wind risk
models. The third, "affordability," would call for the government
to provide re-insurance to the providers for coverage in the event
of a major catastrophic storm that overwhelms the insurers'
capacity to absorb the losses. And the fourth, "mitigation," would
support more rugged building practices, with premium reductions
provided for houses that are built to tougher specifications.
The new proposal would not aim to combine wind and flood
insurance — a thorny problem in recent storms, where disputes
have lingered over denials of compensation for storm surge damage.
In one scenario, a windstorm insurance system such as the Travelers
proposal could be folded into the current National Flood Insurance
Program, which is administered by FEMA. But that idea would be
complicated by the fact that many flood policies are issued for
homes far from the coast, where the flood risk is from rising river
water, not storm surge, and where there is no hurricane wind risk.
If the program were adopted as proposed, on the other hand, coastal
homeowners would have to carry three types of insurance to be fully
protected: a flood policy, a "named storm" policy, and a third
policy insuring against ordinary property risks such as fire or
regular "no name" weather risks, such as hail or lightning.
Will Fishman's plan fly in Congress? Hard to say. Travelers
execs have yet to say how they hope to convince Federal officials
of the plan's worth — or how they plan to persuade state
governments to let go of their current powers over windstorm
insurance. But alternatives to the Travelers proposal are scarce
— and as storms grow more frequent and losses more severe, no
coastal state has yet put together a successful, stable system on
the state level for insuring its share of the 50% of all Americans
whose property lies near the coast.