Disaster Recovery

Disaster recovery still is very much on the minds of property owners and insurers in the South Central region despite relatively mild back-to-back catastrophe years.

Louisiana has a long way to go before the state can say it has recovered from 2005 Hurricanes Katrina and Rita. Texas came close but did not succeed in passing legislation to bolster funding for the Texas Windstorm Insurance Association. Oklahoma and Arkansas both suffered severe storms and flooding this year and Arkansas has a potential earthquake disaster lurking in the New Madrid fault line.

Now, Washington has taken rare steps toward building a federal disaster plan. Not everyone agrees this is a good development but whether a final plan is enacted or not, the federal activity is worth watching.

Earlier this month, the House of Representatives passed H.R. 3355, the Homeowners’ Defense Act of 2007. The bill, sponsored by Reps. Ron Klein, D-Fla., and Tim Mahoney, D-Fla., attempts to address the growing problem of insurance availability in disaster-prone states. Nearly-identical legislation has been filed in the Senate by Sen. Bill Nelson, D-Fla., and Sen. Hillary Clinton, D-N.Y.

The legislation creates a pool or consortium for state-sponsored insurance funds to voluntarily bundle their catastrophe risk with one another, and then transfer that risk to the private markets through the use of catastrophe bonds and reinsurance contracts. Proponents say this arrangement will mean that private markets — not tax dollars — would take on the risk. In addition, loans could be extended to any state that faces a significant financial shortfall following a natural catastrophe.

Insurance agents — who deal with affected homeowners every day — welcomed the House action. “The current dysfunction in the natural disaster insurance market requires Congressional action, and passage of the Klein-Mahoney bill is a great first step towards a comprehensive solution,” said Charles E. Symington, Jr., senior vice president of government affairs and federal relations for the Independent Insurance Agents and Brokers of America.

But the approach has been dismissed by some insurers and reinsurers — who may be removed from the market problems agents and homeowners are facing because they sometimes talk as if the private market has the situation under control. Marc Racicot, president of the American Insurance Association, said the “private insurance system continues to be well-positioned to manage natural catastrophe risk, and the best course is to improve, not displace, the private sector’s ability to serve homeowners and businesses that could face losses from natural catastrophes.”

Racicot could be right that the bills will do nothing to improve private insurance. But homeowners who need coverage now may not care whether they are bailed out by private or public dollars after the next storm — as long as help is there when they need it.