A provision for optional wind coverage to the National Flood Insurance Program was passed by the House in May 2007 as part of a reauthorization and reform bill, but the Senate did not support the concept. The proposal has been reintroduced but the Obama administration has indicated that it will not support such a provision. Homeland Security Secretary Janet Napolitano has said adding wind coverage would add exposure to catastrophic risks at a time when the flood insurance program has a debt that has been growing and now stands at more than $19 billion. In addition, she said that because federal programs must be actuarially sound federal wind coverage would not be cheaper than coverage available in the private market.

However, several large insurance companies favor the inclusion of coverage for wind damage in the flood insurance policy. Meanwhile, the National Association of Insurance Commissioners (NAIC) has proposed a somewhat different concept. The NAIC would create an optional “all-perils” insurance policy that includes coverage for flood damage. Under the NAIC plan, the federal government would act as a reinsurer, or backstop for the program, in much the same way as that does for commercial terrorism coverage under the Terrorist Risk Insurance Act, paying losses over a certain dollar threshold, see paper on Terrorism Risk and Insurance. Thus the risk of catastrophic loss would remain with the federal government. Contact your Cravens Warren commercial flood insurance specialist to see how this change may affect you.