Editor’s Note: Should windstorm be added to the NFIP?

The agents’ association is concerned about lack of markets and affordable windstorm coverage for both homeowners and businesses, which it believes has reached crisis proportions in some states.

U.S. Rep. Gene Taylor, D-Miss., recently introduced the Multiple Peril Insurance Act, which would offer windstorm coverage as an option for consumers within the National Flood Insurance Program (NFIP). The bill has sparked debate among insurance agents and insurance companies about whether windstorm insurance should be added to the federal program.

While stipulating that the debate over windstorm coverage is crucial for consumers and independent agents and brokers in many regions of the country, the Independent Insurance Agents & Brokers of America stopped short of advocating the addition of windstorm coverage to the NFIP. It said, however, it will study the possible impact of the proposal.

Meanwhile, insurers have come out firmly against the bill, maintaining it could bring unintended consequences including higher costs for consumers outside of windstorm areas.

Taylor’s bill would set windstorm residential policy limits at $500,000 for the structure and $150,000 for contents and loss of use. Nonresidential properties could be covered to $1,000,000 for structure and $750,000 for contents and business interruption. This coverage would only be available where the local government has adopted standards designed to reduce windstorm damage.

The Big “I” commended Rep. Taylor for his work and said it is examining the impact this proposal may have on both consumers and the private market. The agents’ association is concerned about lack of markets and affordable windstorm coverage for both homeowners and businesses, which it believes has reached crisis proportions in some states.

The Property Casualty Insurers Association of America (PCI) stated that while it believes the Multiple Peril Insurance Act is well-intentioned, it says the bill could create artificial subsidies that would raise insurance rates in areas that don’t regularly experience the kind of massive wind damage to which coastal residents and businesses are exposed.

The debate is an interesting one and it will be worth watching to see if Taylor’s bill makes any headway in the U.S. Congress. With windstorm coverage being scarce to non-existent in some coastal areas, and expensive if it can be found, many states, including Texas and Louisiana, are trying to figure out ways not only to fund their residual windstorm markets so that coverage will be there when the next “big one” hits, but to encourage private insurers to remain active in vulnerable areas, as well.

PCI maintains that private market initiatives, stronger building codes and land use regulations, backed up, where needed, by state catastrophe funds and limited, high-level federal financial support for responsibly managed state funds is the best solution.