Mississippi Representative Gene Taylor successfully placed language into House Bill H.R. 1264—“the Multiple Peril Insurance Act”— which would require “Write Your Own” insurers participating in the National Flood Program to remove anti-concurrent causation language from their all risk insurance policies. Taylor’s house was destroyed in Hurricane Katrina. Many of his neighbors’ insurance claims were denied based on the continuing wind versus flood insurance coverage controversy which I noted recently in Texas Windstorm Insurer Settles 2,400 Hurricane Ike Slab Claims.

In Bill Adding Wind To NFIP Introduced, May Be Discussed This Week, the National Underwriter addressed this recent development:

The House will likely consider legislation on Thursday that would add wind coverage to the National Flood Insurance Program, a plan opposed by the insurance industry.

The bill, H.R. 1264—“the Multiple Peril Insurance Act”—is sponsored by Rep. Gene Taylor, D-Miss. In discussions leading up to the House’s passage of a five-year NFIP extension last week, Rep. Taylor sought to attach an amendment adding wind coverage to the NFIP. But the House Rules Committee ruled it “non-germane” to the main bill, H.R. 5114, the “Flood Insurance Reform and Priorities Act of 2010.”

In a note to colleagues sent today urging their support, Rep. Taylor argued that the bill would save taxpayers billions of dollars by reducing future disaster assistance costs after hurricanes and tropical storms. “As long as wind and flood coverage are in separate policies, there will be gaps in coverage and lengthy disputes over causation after hurricanes,” he said. Rep. Taylor contended that almost all companies in the private property insurance market would benefit from adding wind to the program.

“The NFIP relies on insurance companies to sell federal flood insurance policies,” he said. “The companies keep about 30 percent off the top for agent commissions, administrative expenses and profits, yet bear none of the risk.” This arrangement would continue under his legislation, Rep. Taylor said.

Reflecting the property and casualty industry’s position, Blaine Rethmeier, a spokesman for the American Insurance Association, said, “The entire industry opposes the bill, and no one thinks adding wind exposure to a program that is already $19 billon in debt is a good idea.” (emphasis added)

The strong insurance industry opposition to this legislation was also echoed by the Insurance Networking News in “Insurers’ Wild Week.” The article included speculation by one insurance industry lobbyist that Taylor’s language was included because of the upcoming election and had little chance of ever becoming law:

“While the Senate ratification of regulatory reform was largely perfunctory, the passage of H.R. 5114, the Flood Insurance Reform Priorities Act of 2010, was replete with last-second drama.

To the consternation of insurers, one of three amendments offered by Rep. Gene Taylor (D. –Miss.), passed by a voice vote and was included in the final bill. The amendment would require private insurers participating in the NFIP “Write Your Own” (WYO) program to remove anti-current causation clauses from their policies. Taylor, whose home was destroyed during Hurricane Katrina and later reached a settlement with State Farm, says the clauses enable participating insurers to shift damage caused by wind to the NFIP.

To be sure, the issue of whether to include coverage for wind damage has been one of the primary issues blocking a long term funding resolution for the NFIP. With the defeat of two of his amendments, a multi-peril insurance bill sponsored by Taylor may come up on the floor as a standalone bill this week. “It’s never over,” jokes Ben McKay, SVP, federal government relations for the Property Casualty Insurers Association of America. Surprisingly, given the number of Republicans representing coastal districts, the vote for H.R. 5114 fell largely along party lines. “There’s a lot of extra stuff in the bill, so if you wanted to find something to love or hate, it’s in there,” McKay tells INN.

[An insurance lobbyist] says that Taylor’s efforts may be largely quixotic, noting that when a bill that included wind coverage appeared in the Senate, there was 85 votes against it. “The Senate won’t pass a bill with wind and [even if they did] the president has said he’ll veto it,” he says. “This may a bit of political gift in a tough election year for Gene Taylor—at our expense.”

Yet, in his remarks on the House floor last week, Taylor’s ardor to include wind coverage seemed genuine as he challenged his colleagues to take up the cause. “Quite honestly, I would like to see which shill for the insurance companies wants to defend what they did to individuals in the Gulf Coast and what they have done to the taxpayers as a whole,” he said.” (emphasis added)

In April, Slabbed updated everybody on Gene Taylor’s efforts in “Let’s talk multi peril insurance and NFIP reauthorization as Slabbed updates the Washington front.” That post contained a link to Gene Taylor’s testimony on the issue and Anita Lee’s coverage of the topic.

Having met with Taylor on this issue and other claims conduct issues following Katrina, I am glad to see he has not given up on finding a way to prevent the insanity of this coverage issue in the future. On his website, Taylor made the following observation regarding what this bill would accomplish:

Another focus of this hearing is H.R. 1264, “the Multiple Peril Insurance Act” which has been introduced by Rep. Gene Taylor (D-MS). After Hurricane Katrina, property owners with an insurance policy expected to be reimbursed for the full damage suffered. However, insurers declined to cover wind damage under the homeowner’s policy if some of the damage was deemed due to flooding, and the NFIP supplement to the policy would only cover flood-related damage. In effect, property owners who had been paying for years for this insurance were caught in the middle of a legal dispute between insurers and the NFIP.

The Multiple Peril Insurance Act would allow homeowners to buy comprehensive insurance and know that hurricane damage would be covered without lengthy legal disputes over how much damage was caused by wind and how much was caused by flooding. Premiums for the wind coverage would be risk-based and actuarially sound. Coverage would be limited. The CBO has scored the bill as budget neutral.

The bill would also reduce future property damage by requiring participating communities to adopt International Building Codes. Windstorm insurance would be available only where the local governments adopt and enforce the International Building Code or equivalent building standards. Thus the bill would not only prevent insurers from shifting liability back to the federal government, it would also save taxpayers money by increasing the number of properties that are mitigated against future wind damage and paid for by insurance premiums rather than post-disaster federal assistance.

In the long run, we will have to pay for the losses we incur. We can do this privately, through the social product of insurance which spreads losses among geographic and time parameters. Similar to the debate about the investment in an energy efficient infrastructure not dependent on carbon, we need promote investment in buildings better hardened against perils of loss. Many of these steps will help reduce the severity of loss risk to private insurers doing business in coastal states.

I hate to sound pessimistic, but I cannot imagine that many insurers would remove a fairly standard clause found in most property insurance policies just to write insurance under the National Flood Insurance Program. I would expect that any final legislation extending the National Flood Program will not require the anti-concurrent clause to be removed from Write-Your-Own policies. And that may be a shame because Taylor’s bill would stop the problem many devastated coastal policyholders are forced to resolve following a significant hurricane storm surge.