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Congressional hearings examine the need for national disaster solution

Two U.S. Senate committees — the Committee on Banking, Housing and Urban Affairs, and the Committee on Commerce, Science and Transportation — met this month to examine the response of the insurance industry to the claims filed by homeowners and business owners in the wake of the calamitous 2005 hurricane season and the need for a national solution for natural disaster coverage.

“Put simply, insuring against natural disasters is a national problem that requires a national solution,” the Independent Insurance Agents and Brokers of America said in a statement. “Despite our longstanding position that the insurance market is best served by limited federal involvement, we believe that a federal solution to the issue of natural catastrophe insurance is necessary to help provide capacity and fill a void that the private market cannot and will not service.”

Franklin W. Nutter, president of the Reinsurance Association of America, testified that creating federal and state catastrophe reinsurance funds would not solve the homeowners’ insurance availability problem. He argued that cat funds do not reduce the vulnerability of people to natural catastrophes. “There is no evidence that state reinsurance catastrophe funds result in greater availability or affordability of homeowners’ insurance,” Nutter said. “Instead, these funds are effectively a cost shifting mechanism — low risk policyholders end up insuring high risk policyholders,” he stressed.

Property/casualty insurers continue to argue that while the private insurance marketplace is the best vehicle to address coastal insurance issues and natural disasters in the U.S., the federal government can play a role in efforts to reduce affordability and availability problems in coastal regions.

“While government and the private sector can and should work together to address this problem, we should not delude ourselves into thinking that economic principles affecting the relationship between supply, demand, and price can be erased by government regulation and programs,” testified National Association of Mutual Insurance Companies’ President and CEO Chuck Chamness.

Both insurers and agents believe that federal involvement should come into play when assisting with the financing of mega-catastrophe risk.

“Government, consumers and insurers must work together to put in place viable solutions to reduce losses from future catastrophes and speed relief to those who need it after the next natural disaster hits,” says Ben McKay, Property Casualty Insurers Association of America, senior vice president, federal government relations.

“There are no shortcuts to addressing these problems, and all of us must remain committed to solutions that guarantee long-term stability in the private markets to protect our economy and, more importantly, to provide certainty to the nation’s insurance consumers,” testified American Insurance Association President Marc Racicot.

Topics Catastrophe