Yes, Of Course We Do Need a National Catastrophe Solution

By | July 16, 2012

The National Conference of Insurance Legislators has a tendency to be a very deliberative and, yes, dilatory, body. During the meeting of its Property and Casualty Insurance Committee last Friday in Burlington, Vermont this past week, every single piece of model legislation under consideration got put off until its next meeting. And this included a resolution from Rep. Greg Wren (R-AL) that I and others on the political Right were watching closely. The Wren resolution would have put NCOIL on record as opposing a national catastrophe fund, “backstop”, “catastrophe consortium” or anything like it.

A lot of the dispute amongst legislators centered around the way that NCOIL would talk about the federal government’s role in dealing with catastrophes. I’m probably, myself, on the extreme side of “no federal P&C insurance” in that, with the partial exception of terrorism–where it seems to me like a federal role really is inevitable–I’d like to see all federal P&C insurance phased out over time. I think the market can and should eventually handle all or almost all risk transfer involving flooding, crops, and nuclear power. I’d also like to see Congress enact more legislation similar to the Coastal Barrier Resources Act that would withdraw development subsidies from disaster-prone and/or environmentally sensitive areas. Mostly, yes, I do think that we could manage disasters better if the government just got out of the way and let the market do its thing.

But this doesn’t mean that a totally private sector solution to disaster response. No less a classical liberal Thomas Jefferson signed the first piece of disaster relief legislation, The Congressional Act of 1803. Although it’s on a lower plane than courts, national defense, and policing, disaster relief is a core function of government that could never be ceded altogether to the private sector. Many of the most important roles–immediate human services, police protection–are best provided locally. But there are still a few positive things the federal government could and should do to make it easier for states to recover from disasters. Here are four to start:

1) Allow executive branch agencies more flexibility in providing relief by administrative means: The current system for disaster relief puts rather low caps on most relief from the federal government. For example, if a state has more than $100 million in transportation infrastructure needs as a result of a disaster, it needs to go to Congress. This is bad fiscal policy since it opens up the appropriations process and usually ends with lots of federal dollars flowing in to the state that has been hit. But it’s also bad for the states because these federal dollars tend to be bound up with whatever rules Congress wants to put in and take awhile to get there. Giving executive branch agencies more flexibility would reserve appropriations for disasters on the scale of Hurricane Katrina and 9/11.

2) Expand the mandate of Joint Task Force: Civil Support: Right now, the rules for calling in the regular military to deal with a disaster tend are so restrictive that it basically never happens. The one standing unit devoted to domestic work, Joint Task Force: Civil Support, has a mandate limited to chemical, biological, radiological and nuclear incidents. While we shouldn’t call out the military at every turn, it does have some logistics capacities that nothing in the private sector matches. In some cases, the President should have the power to call out the military to deal with natural disasters.

3) Pool more risk through interstate compacts for disaster insurance: I’m more than a little bit skeptical that there are huge economies of scale or much monopsony power in having state markets of last resort pool together. But some states–New England and perhaps the mid-Atlantic stretch from Virginia to Georgia–might well realize some savings in a purely free market way by pooling their windpool/beach plan reinsurance purchases and maybe even just merging the windpools/beach plans altogether. Likewise, it’s possible that the California Earthquake Authority could expand its book of business, make money and diversify its risk a little by selling insurance in Nevada and perhaps the two other Pacific Coast states. The federal government would lose nothing if it allowed this to happen.

4) Onshore reserving (In Washington, D.C.): Allowing onshore tax-free reserving could modestly increase the amount of reinsurance capital available and thereby reduce insurance prices a bit around the country. It’s not a fix-all but it’s sure a decent idea.

About Eli Lehrer

Eli Lehrer is president of R Street Institute, a national think tank that supports free markets, effective government and responsible environmental stewardship. More from Eli Lehrer

Latest Comments

  • July 23, 2012 at 2:44 pm
    Bradley S. Brewster says:
    The July 17th op-ed titled "Yes, Of Course We Do Need a National Catastrophe Solution" underscores that the current approach to protecting America from natural disaster is def... read more
  • July 23, 2012 at 2:43 pm
    Bradley S. Brewster says:
    This op-ed underscores that the current approach to protecting America from natural disaster is deficient and must be improved. The author confirms the need for a national cat... read more
See all comments

Add a Comment

Your email address will not be published. Required fields are marked *

*

More News
More News Features