Momentum Gaining for Natural Catastrophe Insurance Solution

In the midst of the 2008 Hurricane season, Washington, D.C. is seeing renewed attention on the issue of natural disaster insurance. Insurance companies, trade associations and Members of Congress are focusing more than ever on developing comprehensive and workable solutions to an issue that affects every American. In the last year, the House of Representatives has passed H.R. 3355, the Homeowners’ Defense Act of 2007, written by Reps. Ron Klein and Tim Mahoney from Florida. This bill would establish a federal liquidity program for state catastrophe funds, a consortium to sell catastrophe bonds and includes a provision authored by Rep. Ginny Brown-Waite of Florida that would create a federal reinsurance backstop.

The Senate, meanwhile, has passed its version of the Flood Insurance Reform and Modernization (FIRM)Act, which includes a major provision that would create a commission on Natural Catastrophe Risk Management and Insurance. This commission would be charged with studying the risks posed by natural catastrophes and recommending specific solutions to these risks.

In a welcome development, a number of insurance companies have also recently offered specific ideas on solving the problem. Over the summer, ideas have emerged from two major independent agency companies: Travelers and the Hartford. In July, Travelers led an effort working with Nationwide, the Council of Insurance Agents and Brokers and the Big “I” to send a letter to Congress outlining principles, called the Four Pillars, that Congress could consider as it develops a solution. The principles include the need for a stable and consistent regulatory environment, transparency in the calculation of premiums, a cost-based federal reinsurance mechanism and mitigation against losses.

The Hartford’s proposal, called the Coastal Catastrophe Partnership, includes a federal reinsurance backstop that is available to private carriers, market based reforms, increased mitigation and building code standards and greater participation in the National Flood Insurance Program. Each of these is consistent with principles that the Big “I” has long supported, and in August, the Big “I” issued a statement welcoming the Hartford’s plan as a major positive development in the effort to solve the natural disaster insurance crisis.

Allstate, meanwhile, has been a tireless advocate for federal legislation on the topic for a number of years and continues to be a leading member of the ProtectingAmerica.org coalition, whose main goal is the creation of a federal reinsurance backstop.

While the Big “I” has not endorsed any of these proposals to date, the association is working closely with each of these companies on their respective plans. We are encouraged that private carriers are recognizing that natural disaster insurance is a national issue that requires a national solution. More than half of all Americans live within 50 miles of our nation’s coasts, with the collective value of coastal properties from Texas to Maine nearing $7 trillion. The Big “I” has been a leader on the issue for more than 25 years and has been calling on the insurance industry and the government to recognize the economic realities of this problem. It is essential that we all work together to ensure that consumers have natural disaster insurance coverage that is both affordable and available without being a drain on the American taxpayer.

The Big “I” applauds Travelers, the Hartford, Allstate and both the House and Senate for their work in developing plans to address the increasing threat to insurance consumers posed by natural disasters.

For years the Big “I” has testified before Congress that “any discussion concerning the solution to insuring against future natural disasters starts with admitting there is a problem.” A major hurdle has been crossed in solving this problem—for the first time, both the insurance industry and the government are admitting there is a problem, and are offering concrete solutions. The next hurdle will be developing consensus among these stakeholders and their competing plans. While this will not be easy, after 25 years of stalemate, the Big “I” welcomes this new challenge.

John Prible (john.prible@iiaba.net) is Big “I” assistant vice president of federal government affairs.

Reg Reform Still Alive

In July, Tom Minkler, chairman of the Big “I” government affairs committee, testified before a hearing of the Senate Committee on Banking, Housing and Urban Affairs on insurance regulation. He discussed the importance of maintaining the consumer protection strengths of the state-based insurance regulatory system while making needed improvements, specifically in the area of agent licensing.

Minkler testified that unlike some federal regulators of other financial industries, state regulators have done an excellent job in the area of financial and solvency regulation. “Unlike other financial services markets, there is no ‘crisis’ in the insurance market that necessitates a risky, massive overhaul of the current regulatory system,” Minkler said. “Yet despite our longstanding support of state regulation, we believe that Congress has a vital role to play in helping to modernize the state regulatory system.”

Minkler emphasized the Big “I”’s support of the NARAB Reform Act which would establish complete nonresident licensing reciprocity. The legislation would be deferential to states’ rights as day-to-day state insurance statutes and regulations, such as laws regarding consumer protection, would not be preempted.

Minkler also reiterated the Big “I”’s opposition to optional federal charter (OFC) proposals, noting that an OFC would be at odds with consumer protection. “The recent crisis in certain sectors of the financial services industry also has shown us that federal regulation is not a panacea for market ills,” he said.

— Katie Butler