A new foundation for homeowners and flood insurance: Nationwide’s legislation for an enhanced homeowners insurance policy

As Congress reconvenes, an innovative legislative approach to flood insurance is being proposed by Nationwide Insurance. The legislation, which is called the Enhanced Homeowners Insurance Policy Act of 2009 (EHIP), is currently being discussed with legislators, insurers and regulators.

The EHIP bill provides a federal regulatory and reinsurance mechanism through the Treasury Department that will allow insurers to include flood insurance in their homeowners insurance policies. Although regulated by the Treasury Department, states will be encouraged to play a major role in the program through the handling of consumer and policyholder issues.

Under the proposal, participation is entirely voluntary for both insurers and homeowners. The current National Flood Insurance Program (NFIP) would continue to be available, as would the standard homeowners policy under state law that does not include flood insurance.

The EHIP proposal contemplates homeowners policies with flood insurance coverage at least equivalent to that available under the NFIP. Insurers would be statutorily guaranteed the right to price the policy in the marketplace, but the flood coverage would be priced to match what a stand-alone NFIP policy would cost for the same property. Insurers would be authorized to offer additional flood insurance at the price they individually thought appropriate for the risk.

Many believe that EHIP, through its inclusion of federal reinsurance for flood losses, would encourage insurers to offer flood insurance, and homeowners to purchase it. Advocates of the EHIP legislation also believe it would greatly reduce the disputes that have plagued homeowners and insurers over "wind vs. water" damage and concurrent cause issues.

Nationwide's EHIP proposal is an intriguing new direction in the long debate over flood insurance. When introduced, the proposal should be particularly attractive not only for Gulf state Senators and House members, but also for all of those who come from other parts of the country where severe flooding can occur.