AIA Urges Caution When Considering National Cat Insurance Program

November 16, 2005

The American Insurance Association (AIA) issued the following response to the Natural Catastrophe Insurance Program Summit being held in San Francisco this week.

“In the wake of the destruction from the 2005 Gulf Coast hurricanes, a discussion about how the private insurance market prepares for, and handles, mega-catastrophes is certainly timely. In fact, insurance companies and other stakeholders have debated potential market-based solutions to some of the significant challenges presented by natural disasters for many years,” said Tammy Velasquez, AIA vice president of state affairs, in a statement.

“However, AIA urges regulators and other public policymakers to exercise caution when discussing any greatly expanded potential role for the federal government or state governments specifically with regard to whether catastrophe funds are necessary or appropriate. The private sector insurance mechanism comprises many different –and often interconnected — parts that must function smoothly in order to work properly and create a robust market for personal and commercial property insurance consumers. Hastily imposed changes could cause the system to fall apart, rather than continue to endure.

“Short of creating an extraordinarily complex new government remedies, AIA believes Congress and states should advance proactive solutions to reduce and manage catastrophe exposures from hurricanes, earthquakes, seasonal storms, and other natural catastrophes. This agenda should include support for strong building codes, the use of computerized catastrophe modeling to measure risk, and support for insurance regulatory environments that foster competition among insurance companies. Over the long-term, these changes will maximize insurance capacity and minimize unnecessary government intervention.

“Unlike terrorism, natural catastrophe remains an insurable risk for the private sector. While natural catastrophes certainly pose challenges to private insurers, extensive government intervention or supplanting of the private market seems unwarranted. Private reinsurance remains available for insurers to purchase and manage their natural catastrophe risk.”

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