What to do about natural disasters? We can’t really prevent them and while many people are skeptical about dire predictions regarding climate change as the probable cause of an increase in weather-related catastrophes, others are convinced that we are indeed in for more and stronger “stormy weather” as a result of global warming.
Whatever the reason for their cause, natural catastrophes rack up big bills, for insureds and non-insureds alike. For those whose property is fully covered for wind, fire, hail and water, insurance should be there to pick up the pieces after disasters like this summer’s massive flooding and tornadoes in the Midwest and South Central states, and wildfires in the Southeast and West. But what if — for whatever reason — it is not?
After the onslaught of hurricane-related losses from 2004 and 2005, the question of how to pay for recovery after natural disasters has been raised time and time again. A bill — H.R. 3355, the Homeowners’ Defense Act of 2007 — recently was introduced in the U.S. House of Representatives by Ron Klein (D-Fla.) and Tim Mahoney (D-Fla.), directed at providing relief from and planning for natural disasters through the use of state run catastrophe pools and private market mechanisms. Insurers for the most part expressed skepticism over such a plan, while agents say the legislation, while not perfect, is at least deserving of discussion. See page N2 for further analysis of H.R. 3355.
Meanwhile in this issue of Insurance Journal, our “Closing Quote” column, which regularly features contributed “opinions” by industry leaders, proponents of opposite sides of the national cat fund debate go back-to-back with arguments supporting both fully private and private-public mechanisms for insuring against natural catastrophes.
In “Closing Quote ‘A'” on page 96, Dennis C. Burke, vice president, State Relations, with the Reinsurance Association of America, explains that the “private insurance market can pay and has recently paid extraordinary natural catastrophe losses.” According to Burke, the private market is “the most efficient way to address and insure risk,” and one that has proved itself time and time again.
Edward T. Collins, national director for ProtectingAmerica.org and managing counsel for The Allstate Corporation, on the other hand, thinks “we can do better.” In “Closing Quote ‘B'” on page 98, Collins says a strong “public-private partnership at the local, state and national levels is the best way to maximize the respective strengths of both the public and the private sectors.” He says while the “current system seems to work well for some, especially unregulated foreign reinsurers,” Collins believes that with the stakes climbing higher and higher, “reform is inevitable.”
With Congress beginning to take action, the debate is underway. The question for each of us now is — will we join in the debate or let others decide?