I always get a little nervous when insurance companies get creative. It usually means the insurance company doing the creating has found a backdoor way to limit its liabilities. In the end, it winds up costing the policyholder the same or more; we just pay a different piper.
The Hartford, a major insurance company, presented its "Coastal Catastrophe Partnership" plan last Wednesday. It urges the federal government to back huge storm claims and state governments to subsidize the flood coverage of its lower-income citizens. Of course, the plan also calls for rate increases for the insurance companies to reflect their true risk in states where major storms pose the biggest risk. The industry claims, for example, that the state of Florida has been suppressing the insurance companies' rates.
Earlier, the Travelers and Nationwide Mutual Insurance companies proposed their own plan that would create federal "coastal zones" for windstorm insurance. The wind coverage in an individual's homeowner's policy would be set by an independent federal agency. The two companies thought the current approaches to flood insurance were okay as is, which is to say that the states should continue to regulate flood insurance.
Since the big storms of a few years ago, insurers have dropped from their plans thousands of people in coastal areas and raised rates and deductibles for others after Katrina alone cost the industry almost $42 billion. Customers and states have battled the companies over the definitions of wind and flood damage.
For those who live in coastal areas, or plan to, it might be worthwhile to compare the plans, although I find them a little complicated to understand, just like most insurance policies. The details can be found at TheHartford.com and Coastplan.com.
