Now that the Florida Legislature has finished overhauling property and casualty insurance, Congress is stepping into the fray. According to the author, the proposed bill -- or the proposed proposed bill, as it has yet to be introduced -- would better define hurricane claims and the allocation of damage between wind and water.
The COASTAL Act (Consumer Option for an Alternative System to Allocate Losses Act), is timely, in light of our recent posts about catastrophe models and reports about insurers' reluctance to adopt the new catastrophe model, RMS v11. While the model anticipates the losses from the disaster, this bill would help insurance companies -- and, presumably, their policyholders -- determine what they should cover and what the federal flood program should cover after the damage is done.
The Senator planning to introduce the bill is from one of the states that sustained devastating losses from Hurricane Katrina. The disputes between property insurance companies and the federal flood program spawned lengthy lawsuits. In the end, insurers compensated some policyholders while others got nothing. And it all hinged on whether wind had caused the damage.
The COASTAL Act would establish a formula that would break down property loss into wind damage and water damage on a storm-by-storm, structure-by-structure basis. The act only comes into play if a structure is decimated, down to the slab.
Not only does the formula take into account the characteristics of each structure, but it is also informed by data about each storm. The data would come from the National Oceanic and Atmospheric Administration as well as academic institutions and private concerns.
The author has high hopes for the bill. He believes that the use of the formula will make coastal regions more viable for property insurers. Opening the market would be a boon to Floridians whose only insurance option right now is Citizens.
Insurance commissioners and insurance company representatives were consulted as the author researched the feasibility of the bill. The NOAA, mayors of coastal communities, the U.S. Army Corps of Engineers and the Federal Emergency Management Agency were also part of the planning.
The insurers' responses ran from positive to indifferent.
Source: Forbes.com, "Bill addresses post-hurricane insurance disputes," Emily Wagster Pettus, 05/27/2011