Tuesday, March 2, 2010

WA state lawmakers approve flood insurance legislation for Green River Valley

The Washington state Senate today approved House Bill 2560, which would allow the insurance commissioner to create a market assistance plan and, if necessary, a "joint underwriting association" if the flood insurance market in Washington's Green River Valley collapses.

Last fall, the Army Corps of Engineers said that a weakened abutment to the Howard Hanson Dam meant that the Corps might have to release substantially more water than usual through the dam for the next few years. As a result, the risk of flooding in the valley below was for a time said by the Corps to be as high as 1 in 3. (Now, after significant work on the dam, the Corps says the risk has been reduced to 1 in 33.)

As a result, many businesses in the flood plain last fall reported major difficulties in finding flood coverage to insure above the National Flood Insurance Program's maximum: $500,000 for a commercial building and $500,000 for contents. Many businesses in the heavily industrialized area have more at risk than that, particularly if one factors in business-interruption losses.

In response, state insurance commissioner Mike Kreidler requested legislation giving him the authority to create a market assistance plan -- a sort of match-making service between people seeking insurance and those selling it -- and allowing for the creation of a Green River Valley JUA.

Insurers might be required to participate in the market assistance plan. If that doesn't ease the crisis, the next step would be a joint underwriting association. Known as JUAs, these serve as a publicly-organized insurer of last resort when an insurance market collapses. The insurance wouldn't be cheap -- the underwriting still has to be actuarially sound, with a $5 million maximum per policy -- but at least it would be available for businesses desperate to mitigate their risk. (The JUA insurers' liability is also capped at $250 million.)

The bill passed the House last month, and Sen. Jean Berkey led the floor action as the Senate passed it Tuesday, 28-17. (See video below.) It now goes to Gov. Chris Gregoire.

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