Posted On: November 8, 2007, 10:53 am CST

Posted By: Fred White

I see a couple of major problems with this idea. First, the pools probably will be set up a a peril specific basis; i.e., hurricane/flood, earthquake, etc. It seeks to me that the only states voluntarily participating in a hurrican/flood pool will likely be those with huge, unmanaged exposures--i.e., LA, FL, AL, MS and perhaps GA and NC. Likewise for earthquake (CA, HI,..). Why would any state with a controlled exposure choose to participate.
The second issue is that a "pooling" of similar exposures in a concentrated area does little to spread or diversify the risk since in most cases, most will suffer at the same time. This is kind of like health insurance--more insureds just mean more losses.
The last issue is that of capability. I seriously doubt that states currently need federal approval to form a multi-state pool for cat risks. It probably does, however, require enabling legislation at the state level to permit that state to participate. Once enough states "permit" themselves to participate and agree to participate, any CPCU worth his/her designation should be albe to write a reciprocal risk sharing agreement for the risk. Again, the real problems are whether or not you have really diversified the risk and whether or not you can actually get affordable re-insurance.

Lastly, I agree that I don't wnat my state to be forced to participate in a pool like this.