The Alliance of American Insurers (AAI) is urging Oklahoma Gov. Brad Henry to sign into law a bill that would limit insurer exposure under the Standard Fire Policy Act, thereby helping to stabilize the state’s commercial insurance market.
“HB 1273, which was sent to the governor May 28, gives the insurance commissioner broad authority to approve fire policies other than the Standard Fire Policy (SFP), thereby allowing insurers to exclude coverage for a fire loss that ensues from a certified act of terrorism,” said Joe Woods, assistant vice president of the Alliance’s Southwest Region. “The SFP’s mandated cover of fire following a loss was a sticking point for many insurers and this change will go a long way toward bringing needed stability to the state’s commercial insurance market.”
He noted that, “so far this year, four other states have taken similar action, with several others expected to do likewise shortly. The Alliance urges Gov. Henry not to delay taking action on this prudent measure.”
Following the events of Sept. 11, 2001, insurers realized that terrorist acts could produce not only horrific initial damage, but also fires that followed the initial event that are potentially more devastating than the primary act, according to John Lobert, Alliance senior vice president of state government affairs, in explaining the need for the law.
“When the federal government passed the terrorism backstop, it did not preempt laws regarding fire losses that could follow an act of terrorism,” Lobert said. “This creates a conflict that is potentially dangerous for the financial health of insurers doing business in states that mandate use of the Standard Fire Policy. The proposed changes in HB 1273 would allow insurers to exclude coverage of such fire damage following a terrorism act if the insured has turned down terrorism coverage under the federal program.”
The New York Standard Fire Policy, as it is commonly referred to, was passed in the 1940s to set a floor of basic fire coverage. “This is an antiquated concept that no longer serves a useful purpose because competition ensures that insurers offer much more than basic coverage,” Lobert said.
Virginia was the first state to enact changes to the Standard Fire Policy earlier this year, followed by Michigan, Minnesota and Nebraska. Similar bills have been introduced in Connecticut, Massachusetts, and New Hampshire. In addition, industry efforts to change the law are underway in Illinois, Louisiana, New Jersey, Pennsylvania and Washington as well as the other 15 states that require the New York Standard Fire Policy.
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