EDITORIAL: Extend lifeline to windstorm victims

Miami Herald--Mar. 30, 2008

The rainstorms inundating parts of the Midwest are a reminder that floods — like hurricanes — are recurring natural disasters that create misery in parts of this country year after year. Like hurricanes, floods are not preventable. But there is a tremendous difference in the way that flood victims and hurricane victims are treated by the insurance market — and it is time for Congress to redress this unfair disparity.

Flood victims have a lifeline called the National Flood Insurance Program, which covers some 5.5 million home and business owners in 20,000 communities. The program extends coverage to potential victims in flood-prone areas, regardless of where they live, for a low cost (premiums start at $112 per year), thanks to revenue from a large base of policy holders. Floods — like hurricanes — don’t observe state boundaries, so why should insurance programs?

This program costs taxpayers practically nothing. Excluding premiums and losses in 2005 because of the catastrophic effect of Hurricane Katrina, the NFIP has taken in some $28 billion in premiums from 1978 to 2006, paying out roughly $15.2 billion to compensate flood victims. This is a ratio of nearly $2 in premiums for every dollar paid out to compensate for losses.

The federal government supports the NFIP, but it is not a purely federal program but rather something of a public/private partnership. Insurance can be purchased directly from an insurance agent or any of nearly 100 companies that write and service the policies.

Hurricane victims should not be excluded from this program, or one like it. Fortunately, some progress has been made in Congress. Last year, the House approved a bill that would allow purchasers of federal flood insurance to add wind coverage to their policies. In the Senate, Gulf Coast lawmakers from Louisiana and Mississippi have joined in a bipartisan effort to block reauthorization of the NFIP unless the Senate bill adds the windstorm provision.

Yet another effort to provide relief, co-authored by Reps. Ron Klein and Tim Mahoney, two Democrats from South Florida, has passed the House and awaits its fate in the Senate. The bill allows state-sponsored insurance funds to voluntarily bundle their catastrophe risk with one another, and then transfer that risk to the private markets through the use of catastrophe bonds and reinsurance contracts.

Unlike the flood program, this bill creates a federal/state consortium that is completely voluntary for the states, although many would be expected to join because the shared risk and anticipated decrease in the cost of reinsurance would produce more affordable policies. At present, more than 30 states that already have a natural catastrophe insurance program or a residual insurance market covering natural disasters such as windstorms, tornadoes, earthquakes, wildfires, etc. would be eligible to join. Under this plan, the federal government becomes the lender of last resort “while those programs accumulate capital sufficient to pay their reasonably anticipated reinsurance losses.”

Both of these bills should be passed by Congress because it has become nearly impossible to find affordable insurance on the private market along the Gulf and Atlantic coasts. If flood victims in the Midwest deserve the protection afforded by multistate insurance programs backed by the federal government, the people of Florida deserve no less.