Washington State Regulator Wants JUA Powers to Provide Flood Insurance

Washington State Insurance Commissioner Mike Kreidler will ask state lawmakers for the authority to create government-run insurance programs as needed, in particular to address flood insurance needs in the Green River Valley.

Kreidler said he will formally propose legislation to gain the ability to mandate the establishment of joint underwriting associations in cases where the insurance marketplace is not meeting critical needs. The Green River Valley -- which Kreidler called "the economic engine for the state of Washington" -- has an estimated $3 billion to 6 billion of total exposure and is at an increased risk of flooding due to conditions at the Howard Hanson Dam, which developed structural problems last year, Kreidler said.

Kreidler said he will pre-file the bill for when the legislature reconvenes in January 2010. Two dozen states now have such authority, he said. But insurers say any such action would be an unnecessary intrusion into a competitive marketplace.

"The insurance marketplace is competitive and capable of meeting the needs of consumers," Property Casualty Insurers Association of America Assistant Vice President Kenton Brine said in a statement.

But Kreidler said businesses are increasingly concerned. Their first stop for coverage is the National Flood Insurance Program, which covers the first $500,000 of property and first $500,000 of content. Beyond that, private-sector insurance is becoming more difficult to find, he said.

"We're getting calls from brokers saying they can't find anything," Kreidler said.

With JUA authority, Kreidler could order insurers to jointly provide start-up financing and guarantee solvency for the new entity, which would operate as a nonprofit insurer of last resort. Before he could intervene, the insurance commissioner would have to meet a series of checkmarks, including verification of "failure" in the admitted and nonadmitted markets.

The Army Corps of Engineers, which oversees the dam, has warned that a weakened abutment beside a dam may cause a release of more water than usual from the dam. This could lead to water levels topping downstream levees, and the increased risk may continue for several years.

Even if the legislature acts in 2010 (a similar proposal was voted down in 2003), authority would not be in place for the next flood season. Even after that, such coverage "is still going to be very expensive," Kreidler said, but it would be available. The alternative would be "to invest in sandbags."

Kreidler's plan both jumps the gun and is a leap too far, Brine said. A tax-free public option for flood insurance should only be a last-resort choice, he said.

"We believe the commissioner should act as he has in other difficult markets, by creating a Market Assistance Program or appointing an ombudsman to connect business owners with insurance producers and carriers," Brine said.

In October, Congress voted to extend the National Flood Insurance Program until Dec. 18 after again postponing debate over the program (BestWire, Oct. 30, 2009). The flood-insurance program awaits a potentially contentious re-write -- including a debate over whether it should extend into wind coverage. Rep. Gene Taylor, a Democratic congressman whose Mississippi home was wrecked by Hurricane Katrina in 2004, has again been urging the Obama administration to insist on wind-damage coverage in a future overhaul of the program. But the insurance industry has strongly opposed that idea, and the effort has also met resistance from the White House (BestWire, Oct. 16, 2009).