Coalition Seeks Catastrophe Insurance Funds in N.Y., Other States

October 3, 2005

Efforts are underway in New York to create a catastrophe program funded by property insurance premiums that will protect New Yorkers from the consequences of a catastrophic storm, terrorist attack or other event.

The effort in New York is part of a national effort to have similar funds built in other states without using taxpayers’ monies.

James Lee Witt, the former director of the Federal Emergency Management Agency in the Clinton Administration, is national chairman of the coalition that intends to push for the catastrophe funds at the state and federal level.

The coalition has formed two Web sites, ProtectingNewYork.org and ProtectingAmerica.org, to advocate for a disaster relief fund. The sites received their seed money from Allstate Insurance Co., which hired Witt and his lobbying firm to work on the model legislation.

Coalition members
Joining Witt in the New York coalition are the New York State Building Officials Conference, Commission of Buildings and Fire Prevention Town of Brookhaven, Fireman’s Association of New York, New York State Fire Marshals and Inspectors Association, New York State Division of Code Enforcement and Administration, National Association of State Fire Marshals, Association of Fire Chiefs, New York City Department of Buildings, Stevens Institute of Technology, and the Allstate Insurance Company. Other public and private organizations are expected to join the effort.

“Our financial recovery mechanisms, which rely primarily on the private insurance market, federal assistance in the form of low-interest loans and a small handful of state catastrophe funds, need to be re-tooled so that they are capable of meeting the immeasurable costs of a true catastrophe,” Witt warned.

The coalition said the special “catastrophe funds” at the state and federal level would be supported by a portion of property insurance premiums that corresponds with the catastrophic risk to be covered. These deposits would be allowed to grow tax-free. No tax dollars would be used to support the funds, and insurance companies could not use these funds for any purpose other than to pay claims from catastrophes that exceed a certain threshold.

(State regulators are also discussing a national catastrophe plan. See story, page N8.)

Witt stressed the vulnerability of the East Coast to disasters. He was joined at the announcement by Cherie Burns, author of The Great Hurricane: 1938, an account of the massive 1938 hurricane known as “The Long Island Express,” which wiped-out much of eastern Long Island. That storm missed New York City by less than 10 miles, took 700 lives and left 63,000 people homeless.

“If the Long Island Express hurricane made landfall today–same spot, same force as in 1938 –it is estimated that the damages in Suffolk County alone would reach $24 billion–nearly the same impact as the terrorist attacks of 9/11,” Witt said.

“The densely populated and highly developed areas along America’s Eastern and Gulf Coasts are particularly susceptible to the ravages of nature. Actions to protect those, and other, areas must be taken by the state and federal governments, and must be taken now,” Witt said.

Two Long Island lawmakers have drafted a bill that would create a fund that would kick in after claims reach $2 billion.

Citing a Government Accountability Office report that a major event as damaging as Florida’s 2004 hurricanes could severely disrupt insurance markets and impose substantial recovery costs on government, business and individuals, Witt said this warning should be viewed as “an urgent call to action by policymakers at every level of government.”

The coalition is promising to also work to strengthen building codes; improve consumer education on preparing for a catastrophe; improve the relief delivery process and make sure there are adequate building materials and licensed contractors available; and find ways to assure the viability of the private market.

FEMA maps
In related news, the Federal Emergency Management Agency outlined how its three-year program of upgrading the flood maps for 20,000 communities could end up forcing residents in hundreds of communities nationwide to buy flood insurance and could halt construction in some low-lying areas. Any flood plain protected by a levee will have to be certified to meet the 100-year flood standard, or FEMA will assume the levee doesn’t exist for the purposes of gauging flood-prone areas.

“If we say a levee’s going to protect you from a 100-year flood, we want to make sure that’s true,” FEMA spokesman Butch Kinerney told The Associated Press. “If you say it’s good, we want to see the engineering data to prove it.”

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Insurance Journal West October 3, 2005
October 3, 2005
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