Regulators Testifiy before Congress in Support of All-Perils Policy

July 18, 2007

Speaking before a key subcommitee of the U.S. House of Representatives Tuesday, Sandy Praeger, president-elect of the National Association of Insurance Commissioners (NAIC) and Kansas Insurance Commissioner, testified on the merits of all-perils insurance coverage. Commissioner Praeger commended the Subcommittee on Housing and Community Opportunity for holding the hearing and thanked Rep. Gene Taylor (D-MS) for raising the issue of improving the coverage offered to consumers.

“Consumers expect all-perils coverage and, in some cases, they incorrectly believe they have it,” Praeger said. “We think Rep. Taylor’s proposal should be considered in the broader context of natural catastrophes and today we offer some alternative concepts to consider.”

Rep. Taylor’s multi-peril insurance bill, H.R. 920, would allow the National Flood Insurance Program (NFIP) to offer wind coverage. The NAIC believes this approach would help resolve potential conflicts between consumers and insurers regarding the cause of damage to their homes during a hurricane: i.e., wind from the hurricane and/or water damage from a subsequent flood. However, Rep. Taylor’s solution would move the line of contention to other perils, such as fire or earthquake damage.

Commissioner Praeger’s testimony, therefore, proposed some broader alternatives. For example, she suggested the NFIP could be restructured to function as a reinsurer. By doing so, any debate over what might have caused the loss would be between the insurer and the NFIP, not the consumer. Alternatively, the private market could offer all-perils coverage and be supported by a federal backstop or credit line that would cap the industry’s share of such catastrophic losses — helping insurers manage their claims-paying ability while keeping insurance affordable for consumers. These proposals could be structured to leave the private market as the first line of defense, while recognizing the roles of state and the federal government in managing natural disasters.

“Kansas recently had tremendous flooding. In its wake, too many of our citizens discovered that they were either uninsured or under-insured for such a disaster. This hearing highlights the need for regulators and legislators to work together to develop a better product that closes the gaps in coverage and encourages personal responsibility,” Praeger said

Source: National Association of Insurance Commissioners (NAIC)

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