Thursday, June 26, 2008

Nationwide is on your wet side...

Nationwide is asking Congress to allow insurance companies to sell flood coverage. Here are some of the details of the plan ( Times-Picayune):

Under the plan, homeowners would buy flood coverage as part of a new type of homeowners policy. The private flood coverage would be the same price as what consumers could buy through the National Flood Insurance Program, but consumers could buy more than they can through the federal program, which limits coverage to $250,000.

But unlike regular homeowners policies, the new homeowners policies with flood coverage would be regulated by the federal government instead of state insurance commissioners. The flood premiums would be held in a separate account than the regular homeowners money. Insurers wouldn't profit from the flood premiums, but wouldn't be taxed on what they collect in flood premiums.

A portion of the flood premium that consumers would pay would go to the federal government to help build a reinsurance fund that would step in if a huge flood exhausted the regular flood premiums that private companies collected. The National Flood Insurance Program would continue to exist, but a flood reinsurance fund to serve the private flood policies would be created alongside it.
The article notes that this action may address some of the wind vs flood disputes that occur after large storm events such as Katrina. These companies could play a more active role in making sure clients have flood coverage.
The idea is that enough private companies would start offering their own flood policies that the reinsurance program would be more financially viable than the flood program, which went broke after Katrina.

With this proposal, Nationwide joins other companies in trying to offer solutions to how the country finances disasters. Travelers has pitched a federally regulated coastal wind zone and Allstate is backing the notion of a national catastrophe fund.

I like the idea of developing private market solutions to these types of problems. In order to develop a more concrete opinion, I would need more information on any proposed legislation; however, it is promising that Nationwide would proposing this type of move.

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