Policy Documents

Financial Services and E-Commerce The Wind Versus Flood Dispute: A Conflict of Interest

John H. Rice and Jennifer Powell Miller –
July 1, 2009

When Hurricane Katrina struck the Gulf Coast on August 29, 2005, the destruction left in her wake was impossible to measure. Wind and water leveled communities, destroyed homes, stole cherished belongings, and washed away the carefree lives of residents caught in her path. Each citizen, business, and unit of government was impacted by the scope and breadth of the disaster. As the waters receded, survivors faced the next challenge, rebuilding more than 300 years of history lost to the storm. Property owners looked to the federal government and the insurance industry to provide the means to put their lives back together, depending largely on federal disaster relief assistance and the proceeds from separate ?ood and wind insurance. As rebuilding and recovery e? orts began, thousands of insurance claims were ? led. Claims adjusters were forced to evaluate the loss su? ered and make determinations as to the cause of the damage and destruction of properties—wind versus ? ood—determining whether the private insurance industry or federal government would have the obligation to pay. In the midst of the recovery process, allegations were made that corrupt evaluation policies adopted by several insurance companies led to the denial of many wind insurance claims. These allegations and the general retreat of the private insurance industry from o? ering wind coverage in coastal areas after the hurricane necessitated a reevaluation of wind and ? ood insurance policies.

In anticipation of another active hurricane season, the Multiple Peril Insurance Act was introduced to the House of Representatives by Mississippi Congressman Gene Taylor in March 2009. This Act proposes to expand the National Flood Insurance Act of 1968 to include windstorm insurance coverage in addition to ? ood insurance coverage. h e revisions would increase the availability of wind coverage and eliminate the need for insurance claims adjusters to determine whether water, wind, or some combination of the two damaged or destroyed a property; regardless of what caused the property damage, the total damage would be covered under the Act.