Hillary’s Misfire
With one glaring gaffe, U.S. Senator Hillary Rodham Clinton inadvertently exposed one of the biggest problems facing the National Flood Insurance Program—the fact that too few outside the industry have a clue about what the coverage entails, whether they need it, or even who writes it.
In a July 1 letter, the New York Democrat called on Allstate’s chief executive to “reconsider and explain” what was referred to in her press release as the company’s “irresponsible decision” to “drop the flood insurance policies of 30,000 homeowners who reside in New York’s coastal counties.”
Of course, Allstate is doing no such thing, since flood risks are left to the federal government, which offers supplemental coverage to homeowners through servicing insurers and agents.
A staffer later insisted the senator actually meant to address Allstate’s decision to cut its homeowners insurance exposure by red-lighting any new coverage in New York City, Long Island and Westchester County, while declining to renew an unspecified number of existing policies.
“I found the news of these cancellations very troubling, especially in light of the recent floods that have ravaged New York State,” Sen. Clinton wrote to Allstate CEO Ed Liddy. She demanded a “thorough explanation that details Allstate’s reasons for these cancellations, one that also includes an assessment as to why alternative coverage is not being made available so that this drastic step can be avoided.”
The letter betrays so much ignorance about what’s going on, it’s hard to know where to begin to set Sen. Clinton straight.
I think it was more than a typo that she mistakenly connected New York’s flood damage to Allstate’s move—it shows she doesn’t understand that standard homeowners’ coverage has nothing to do with such exposures. Our own lawmakers, let alone average policyholders, often don’t get the difference.
To wonder “why alternative coverage is not being made available” is bogus, since it is up to the market to pick up prospects rejected and customers abandoned by the “Good Hands” carrier. Thus far, it appears the market is doing just that, as competing insurers boost their writings.
As to why Allstate is taking these steps, it’s no secret the carrier had built up a dangerously high market concentration. To maintain their exposure while weather experts warn them about a hurricane hitting New York would be “irresponsible.” Backing off a bit is long overdue. The goal is to better spread the risk—the secret of success for insurers.
If Sen. Clinton really wants to help her constituents get adequate coverage, she should lead the charge to educate the public about the need for flood insurance, more aggressively market it and make sure lenders require its purchase. She should push to raise coverage limits that are clearly inadequate in this booming real estate market and make sure sufficient rates are charged to match each individual’s risk.
She might even suggest including flood coverage in all standard homeowners policies—or at least those sold in clearly vulnerable areas—with appropriate premiums collected by insurers and paid into a disaster pool. Earthquake coverage in fault-prone regions could be financed the same way.
Unfortunately, I fear this is a hopeless cause. I doubt Congress will ever get its act together and actually do something productive about disaster insurance. That would mean the federal government would finally have to get serious about catastrophe management. It’s much easier to demonize insurers, then bully or sue them into covering what their policies clearly exclude.
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