In the aftermath of a hurricane landfall, there often isn’t enough data or experience relating to the losses to make known for certain whether a given loss resulted from wind or water. Each time an indeterminate loss situation (total home destruction) takes place, protracted legal battles and custom-made agreements are currently the only way to resolve disputes over who should pay for losses.
This paper describes the problem of indeterminate losses, outlines the shortcomings implicit in two other frequently proposed solutions, and then describes a better solution: a standardized loss allocation system. Under such a system, federal and state regulators and private parties would agree in advance to distribute losses in specific ways. Rather than adjusting claims individually, a standardized loss allocation system would, in the case of a total loss, distribute claims based on a formula between wind insurers and the National Flood Insurance Program (NFIP).