Rep. Taylor's bill is a Band-Aid at taxpayers' expense

By JIMMY TAYLOR
1,452 words
28 September 2007
The Sun Herald (Biloxi, MS)
2
English
(c) Copyright 2007, The Sun Herald. All Rights Reserved.

A SUN HERALD FORUM

I have been a State Farm agent in this community for 32 years. Many of you know me and know that I am as saddened and frustrated as anyone else by the difficulty we have all experienced over the last two years.

Like most of you, many of my family and friends experienced complete loss from Hurricane Katrina and have struggled to get back on their feet. Also, like most of you, I have spent countless hours trying to seek ways to ensure this disaster never is repeated in the future.

Perhaps the most-discussed solution to our problems is U.S. Rep. Gene Taylor's legislative proposal
seeking to include wind coverage into the national flood policy. Most solutions arise from disaster and come from a significant desire to improve citizens' well-being. I expect Rep. Taylor's does, as well.

However, as someone who has been around this issue most of my life, this proposal is not a solution to our problems, but assurance that we will all be disappointed and unprepared should such a monumental catastrophe occur again.

The National Flood Insurance Program was created in the 1960s to provide flood coverage for the many Americans across the country whose property was subject to flooding. Prior to the 1960s, the only relief for flood was federal assistance. By and large, homeowners policies issued by private companies have never covered flood damage and after several significant storms (including Hurricane Betsy in New Orleans) the flood program was created.

I began writing through the NFIP in 1975. At that time, it would take two to six weeks to get a policy issued and often that long to get an answer for even the simplest question. Good luck if you had a claim.
The program was run so poorly and had so many complaints NFIP decided to outsource it to E.D.S., a
company owned by Ross Perot serviced out of Washington. Things were not much different. When calling to get an answer you would never talk to the same person and might get five different answers. Claim service was no better.

In the late '80s or early '90s, FEMA adopted the write-your-own program, under which individual insurance companies, using their own people and resources, would write, service and handle claims for NFIP. All underwriting and claim-handling guidelines were set by FEMA and were audited regularly. This continues today.

At the request of many misplaced policy- holders, and the companies handling claims, the government
suspended many of the onerous rules in the aftermath of Katrina, ensuring funds would flow as quickly as
possible to displaced citizens.

Has the write-your-own program and the suspension of rules after Katrina been good for FEMA and the consumer? For a number of reasons, the answer seems to be a clear yes.

Better cost, service and claims

Cost. Certainly for those who have taken it upon themselves to obtain this coverage, flood coverage has
maintained a fair price over the years and continues to do so.

Service. As an agent I can pick up the phone or e-mail and underwriter or adjuster and get an answer within minutes. This is a great comforting factor for policyholders. Call a government agency and see how long it takes to get an answer.

Claims. Most insurance companies have full-time claims people who are highly trained and ready to go at a moment's notice. For FEMA to set up a claims and underwriting department would cost the taxpayers billions.

What's wrong with Rep. Taylor's solution?

The coverage will be unaffordable, or will require unbeforeseen subsidization. NFIP has been subsidized for many years by the taxpayers. Last year it had a $25 billion deficit. This deficit is significant but nothing compared to what would happen under Taylor's plan. The research firm Towers and Perrin recently estimated that by adding wind coverage to the flood policy it would run the NFIP's deficit up to as high as $200 billion.

Have we forgotten what the Mississippi wind pool's rates did in January when required by law to be
actuarially sound? Business 297 percent increase, residential 100 percent increase, while State Farm wind rates remain at pre-Katrina levels (in some areas one-fifth or less the rates of the wind pool).

More importantly the U.S. Senate recently killed a bill which sought to benefit states (proposed by Florida legislators and supported by the Southern Governors Association) in situations where losses exceeded $100 billion to $200 billion, much less of a subsidy than Taylor's proposal. The reason, expressed by non-coastal legislators and the Bush administration: "It's not right to create such subsidies."

Right, or wrong, citizens across the country, and the people who represent them, are concerned about such large subsidies. Let's create solutions that can succeed and have an impact quickly, rather than ones which cannot.

It presumes companies don't pay wind damage. Just State Farm has paid over $1.3 billion, mostly for wind damage in Mississippi, including many homes that had flood damage.

The issue here is what happens when wind and water occur and nothing is left, something that occurred
during Katrina to a level never even remotely experienced before.

Insurance companies have paid wind damage in hurricanes for almost a century, including after Hurricane
Georges in Mississippi and Ivan in Alabama. In Alabama and Louisiana, this wind/water issue is being
resolved.

Recent decisions at the 5th Circuit Court of Appeals have also sought to resolve the legalities. Unbeknownst to most of us, the NFIP has for years, and continues today, to train adjusters that these losses are covered under the flood policy.

However, irresponsible actions on the part of our state attorney general, in conjunction with a prominent
personal-injury lawyer, have so complicated this issue the average person has no idea what to fix.

Rather than create a $200 billion scar on the federal budget, let's try to find a solution to the problem, getting clarification on who pays for these events and ensuring that people are properly insured to cover them.

What is right with Rep. Taylor's solution?

Setting an antiquated limit on how much flood insurance one can buy is wrong. Why? One of my insureds bought a house 20 years ago for $90,000. Today it would cost between $500,000 and $600,000 to rebuild due to inflation and building costs. Shouldn't a person be able to insure a home for its replacement cost? Would you put your money in a bank if the FDIC insured it for only 15 percent of its face value?

The bill addresses the most important question from Katrina, not having enough or having no flood
insurance at all. I believe the bill raises coverage limits from $250,000 real property and $100,000 contents, to $500,000 and $350,000. This is a minimum, in my opinion. I ask all of you, if Rep. Taylor and others had adequate flood insurance, would we be where we are today?