Today Anita Lee profiles in the Sun Herald legislation introduced in the Senate by Roger Wicker to reauthorize the NFIP for 5 years. Talking NFIP is fashionable in political circles these days and the insurance industry is heavily dictating the discussion in DC.
After reading the entire bill and Senator Wicker’s FAQ sheet I’ll say I was underwhelmed. Don’t get me wrong I greatly appreciate the fact that Wicker is the only national politician in Mississippi that gives a shit about the coastal insurance crisis. I just don’t think using concepts based on MID Commish Mike Chaney throwaway lines advances the cause of true NFIP reforms much and I agree with former Texas Commish Robert Hunter who thinks Wicker’s proposal is unworkable in practice. Then again here at Slabbed we’re underwhelmed by Mr Hunter’s proposals too as the thinking at the consumer federation just isn’t innovative in its own right but that is another post.
Otherwise the Senator’s bill reauthorizes the NFIP almost as is, with the same low overall coverage limits. One big change is the 20% annual rate increases and like the House there are new mapping provisions. Reading this latest story and an earlier piece in the Sun Herald on a similar bill on the fast track through the House of Representatives you really get a flavor for exactly how much the insurance lobby is dominating the discussion in DC. Wicker himself alluded to it as Anita reports:
Wicker believes his bill is more palatable than previous efforts to offer optional wind coverage through NFIP so that one policy would cover wind and storm-surge losses.
The proposal has failed to gain traction because of the potential cost to taxpayers.
It actually failed to gain traction because the insurance industry owns the Senate Banking Committee. The code word here is palatable because that begs the question palatable to who? Throw in a few ignorant idealogues like Alabama Senator Dick(less) Shelby and any meaningful reforms are out of the question. Over on the House Side Chicago land Representative Judy Biggert, chair of the House Financial Services Committee, is owned by the insurance industry lock stock and barrel. Her bill adds ALEs to the NFIP, which will help elimiate one of the reasons a policyholder would sue their insurer after a Hurricane in a wind water dispute. Unfortunately to the extent the program is $20BN in the red, adding new bells and whistles is out of the question politically when there are billions to spend bailing out big companies like AIG that actually defrauded the NFIP after Katrina.
And this brings us to the flooding in the Mississippi River Watershed which is now being cited as a reason to act now on the NFIP in congress. It is a bogus argument as it is a poorly kept secret that midwestern states have some of the lowest NFIP participation rates in the country. For example our friend Jason at American Zombie wrote an excellent post on the drama at Cairo Illinois where the Corp of Engineers ended up blowing levees on the Missouri side of the Mississippi River to relieve the pressure on the levees in Cairo. Now you’d think that folks living behind expensive taxpayer funded levees would have the sense to have a flood insurance policy but one looksie at the NFIP participation statistics for Cairo Illinois reveals there were a whopping 87 policies in force there as of March 31, 2011. Indeed our oldest blogging friend Editilla has linked story after story in the local media of folks in the Morganza floodway that did not have flood insurance. I would submit this is the big picture problem and even the insurance industry owned academics at U Penn get that. I’m pretty sure Senator Wicker does too.
I mention this because when the floodwaters recede FEMA and SBA will come in with an open checkbook helping folks rebuild just like they did after Katrina. Don’t get me wrong, from a public policy standpoint it is not good to have families made homeless due to natural disaster on the street. But to the extent the taxpayers are paying for it to begin with surely there is a more efficient way to do this. We’ll never get there when the terms are being dictated by an industry with an anti trust exemption that profits from as many different slices of the economics of disaster as they can.
So will drastically raising the rates for flood coverage increase participation in places like Kansas City Missouri where the clueless Angela resides? (207 policies in force on the Kansas side of the line, 802 on the Missouri side). I think not folks. In fact it will likely reduce the 2442 policies in force in my small town of Bay St Louis, Mississippi. This isn’t rocket science folks but you gotta get the special interest rats off the pile of debt-fueled cash that is US Treasury to get a real solution.
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Hunter does not try to understand or acknowledge the issue. Yes, every house is different so it would be more accurate to adjust each loss individually rather than use a formula based on weather data, but this proposal is directed only at the indeterminate losses, the slabs where there is not enough physical evidence to differentiate between wind and flood damage so an accurate adjustment is not possible.
The current system is to let the insurance company blame 100% of the loss on flooding so the federal government pays flood policy limits and then provides the homeowners with a trailer or cottage to live in for a couple of years while they sue the wind insurers for the rest of the loss. The insurance industry likes this system and they are not going to support Wicker’s proposal or any other proposal that would take away the conflict of interest to control the allocation between wind and flood. Congress is not going to pass any bill that allows a federal agency to determine how much a private insurer owes to its policyholders.
It might be possible to do a weak version of something like this at the state level – the South Carolina Insurance Commissioner has been an advocate for using wind speed and flood height data to allocate wind and water losses by formula. The insurance industry might allow industry-friendly commissioners and legislatures to set up a wind/water allocation formula that the industry would be able to rig behind the scenes to use its preferred data and have the formulas adopt the assumptions of the insurance defense experts who always say that four hours of Cat 3 hurricane winds never cause any structural damage but 3 feet of water obliterates everything in its path.
I could see the industry supporting a state-level wind/water formula in Mississippi or Louisiana or South Carolina where they would own the process, but they would not trust Florida or North Carolina to stay bought.