Finding a solution to natural disaster insurance

In 2005, our country faced several devastating and record-setting natural disasters, including 27 named hurricanes, which left the lives of many Americans in ruins. These disasters roiled the insurance marketplace and our overall economy. Estimates for 2005 hurricane losses are approximately $50 billion, greatly exceeding the previous record set in 2004, when 22 events caused $27.5 billion in insured losses. Six of the top 10 most costly catastrophes on record in the U.S. occurred in the 2004-05 hurricane seasons.

The high costs of recent natural disasters have created exposure and solvency issues for companies that write homeowners and property insurance in disaster-prone areas. As a result, many insurers have stopped writing new business in or withdrawn from at-risk markets, making it difficult for residents to find coverage. Recently, we are also witnessing increasing reports of a similar lack of availability and affordability for commercial property coverage.

The real issue: serving consumers
The Independent Insurance Agents and Brokers of America approaches the issue of natural disaster insurance from a very simple perspective: we are here to serve consumers’ needs, whether it is helping them secure coverage to protect their families and their homes prior to an event, or assisting consumers after an event to ensure that claims are paid quickly and fully. As intermediaries be-tween consumers and their insurers, our members cannot and will not walk away from consumer needs as long as they demand coverage for these risks. We believe our industry must come together with policymakers to find a solution that will encourage participation in all markets.

Any discussion concerning the solution to insuring against future natural disasters starts with admitting there is a problem. The IIABA believes it is no longer enough to say that the private market can handle catastrophic risks, when coverage is not sufficiently available at affordable rates. It is our experience that private market coverage is scarcely available at any rate in some areas–this is fast becoming an availability problem rather than an availability and affordability problem.

In order to serve consumers and protect taxpayers from ad hoc post-disaster funding, we believe that insuring against natural disasters is a national problem requiring a national solution. Despite our longstanding position that the insurance market is best served by limited government involvement, we believe that a federal solution is necessary to help provide capacity and fill a void that the private market cannot and will not service. However, it is important to work closely with state insurance departments and legislatures, since they are equipped to understand and serve the needs of local consumers in local markets. As such, given the absence of affordable coverage and the exposure to consumers and taxpayers, we believe that there is a very limited and appropriate role for the federal government, and we support proposals that increase insurance availability and affordability in catastrophe-prone areas.

Establishing a federal commission
Toward this goal of finding a solution to the problem of natural disaster insurance, the IIABA strongly supports the Catastrophic Disaster Risk and Insurance Commission Act, introduced by Rep. Debbie Wasserman Schultz (D-Fla.) and cosponsored by nine representatives on both sides of the aisle. This legislation would establish a national commission tasked with recommending policies to help ensure the availability and affordability of homeowners and commercial insurance in natural disaster markets. It is conceptually similar to S. 3114, introduced by Senator Bill Nelson (D-Fla.), the Commission on Catastrophic Disaster Risk and Insurance Act, which we also strongly support.

The legislation establishes a national commission to recommend policies to help prepare for and manage disaster response, mitigate future costs, reduce potential fraud and abuse in a federal repayment program, and hedge any risk exposure assumed by the government in the adoption of a national catastrophe program.

The legislation would require the Commission to: study all natural disasters, including hurricanes; to ensure that the federal government’s role is fiscally responsible; analyze the appropriate role for states in stabilizing the property and casualty insurance and reinsurance markets; investigate the merits of all legislative proposals aimed at solving this market failure; and report to Congress with the results of the analysis and specific recommendations within six months, thereby allowing for a comprehensive analysis while ensuring that the timeline reflects the severity of the problem.

Input from agents
One of the most important aspects of both proposals is that they would afford a seat at the table for all stakeholders. It is vital to the success of the Commission that independent agents, consumers, mortgage lenders, regulators, academics, insurance companies and others with unique perspectives be represented. Only with the active participation of all stakeholders will we be able to find a solution that encourages the private market to serve consumers and that protects taxpayers. We hope this legislation prompts a thorough examination of proposals that will encourage insurers to increase availability and affordability of homeowners and commercial insurance coverage in all markets. The Big “I” strongly supports the efforts of Rep. Wasserman Schultz and Sen. Nelson, and we stand ready to assist Congress in any way we can.

Charles E. Symington Jr. is IIABA senior vice president for government affairs and federal relations.