Q&A on insurer’s plan for joint wind, flood policy

Jun 26, 2008

The New York Times--June 25, 2008


Nationwide Mutual Insurance Co. is lobbying Congress for permission to allow insurance companies to include flood coverage in homeowner policies. The vast majority of flood insurance policies are currently sold by insurers but subsidized by the National Flood Insurance Program.


Q: Why does Nationwide want to do this?

A: Nationwide says Hurricane Katrina inspired its plan to merge wind and flood coverage into one policy. Insurance companies paid for billions of dollars in wind damage from the August 2005 hurricane, but thousands of policyholders sued insurers for refusing to cover damage that the companies blamed on Katrina’s storm surge. Bringing the two forms of coverage under one policy, Nationwide says, should ease confusion and help avoid costly litigation spawned by wind-versus-water disputes with policyholders.

Q: Doesn’t my policy already cover flood damage?

A: Federally subsidized flood insurance is sold by insurers separately from their homeowner policies. Homeowner policies vary in their terms but generally limit coverage to damage caused by a hurricane’s winds and exclude damage from rising water. If your home is flooded by a storm surge, your homeowner policy probably won’t cover the cost of those repairs.

Q: Isn’t it clear whether hurricane damage was caused by wind or flooding?

A: Not always, and that’s why many Gulf Coast homeowners sued insurers after Katrina. The storm reduced many Mississippi and Louisiana homes to a slab, making it difficult for adjusters to determine if wind or water was responsible for destroying the home.

Q: How would Nationwide’s plan work and what would it cost?

A: The details of its plan are still in the works, but Nationwide has posted an outline of the proposal on its Web site at http://www.nationwide.com/newsroom/ehip-proposal.jsp. Nationwide says it would sell flood insurance at the same price as NFIP policies, but policyholders could buy flood coverage beyond the limits of the national program. Also, unlike other homeowner rates, prices for Nationwide’s expanded policies would be exempt from state regulation. However, the Treasury Department would regulate and ”reinsure” Nationwide’s policies.

Q: Are other companies considering similar strategies?

A: Most insurance companies refuse to comment on a competitor’s products, but industry experts say the plan could appeal to other insurers. An aide to Rep. Gene Taylor, D-Miss., a fierce critic of how insurers handled Katrina claims, says the proposal could benefit consumers if other insurance companies follow Nationwide’s lead and create a competitive market for flood coverage.

Q: Who will decide whether Nationwide can include flood insurance packages in its homeowner policies?

A: Congress would have to approve the proposal. Nationwide is drafting a formal plan, but a bill hasn’t been filed yet. In the meantime, the company has briefed more than a dozen members of Congress on the concept.