Proposed Wind Insurance Program Not Without Problems

A new government report analyzing H.R. 3121, the Flood Insurance Reform and Modernization Act of 2007 has found that the addition of wind coverage to the current federal flood insurance program might benefit some policyholders, and some insurers, but not without tradeoffs.

The legislation currently under consideration would require that the premiums paid by consumers generate enough revenue to prevent the program from borrowing money to cover exposure, but there is a risk for losses to exceed expectations, in a fashion similar to what happened three years ago with Hurricane Katrina.

If H.R. 3121 is approved, a new federal insurance program would be created to provide both wind and flood coverage for those who live in high risk areas. Insurers would have reduced risk because the federal government would absorb much of the exposure, which totaled almost $600 billion last year.

The trade-offs that such a program would require, however, could mean delays in reimbursements, (if adjusters are not required to differentiate between wind damage and flood damage), or leaving property owners without enough coverage to rebuild.

Congress has asked to GAO (Government Accountability Office) to analyze the Act, which is why the report was generated, but no decision has yet been made.