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 ("Insurance 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 winning. 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 "Mortgage 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 resort. 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 (see "Travelers 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.