Meeting Today’s Challenges and Preparing for Tomorrow’s

Several pressing public policy issues remain to be debated in the Gulf region and across the country. At the forefront is the question of how we, as a nation, will finance losses from future mega-catastrophes.

Weather forecasters predicted that the 2005 hurricane season could be more active than normal, but no one thought it would produce 26 named storms and the most destructive storm on record–Hurricane Katrina.

Katrina tested the mettle of the insurance industry and highlighted weaknesses in the nation’s emergency response system. Yet it also demonstrated the incredible value of our products and services to individuals, communities and the nation’s economy. We were–and are–there when people need us most.

Immediately following the storms, catastrophe teams moved into place and began to settle claims quickly and fairly. Adjusters, many whose own homes were damaged or destroyed, drove for hours, slogged through receding floodwaters and lived out of RVs in order to access the affected areas. Facing blocked roads, gas shortages and no electricity, insurance professionals relied on ingenuity, dedication and expert training to get the job done.

There will always be those for whom the best is not enough or who see personal opportunities in others misfortune. We saw examples of that in the wind versus water lawsuits filed in Mississippi and Louisiana. While we will certainly fight these legal battles in courthouses from Biloxi to Baton Rouge, at the end of the day, it is our industry’s performance in the field that will win the day.

It is estimated that over 1.8 million catastrophe claims will be filed for an expected insurance industry pay out of over $40 billion dollars paid to policyholders. The Gulf region’s recovery is underway, thanks in large part to the insurance policies that protect individuals and businesses and the dedicated professionals who make sure that claims get paid.

Looking ahead, several pressing public policy issues remain to be debated. At the forefront is the question of how we, as a nation, will finance losses from future mega-catastrophes. Economic and political issues complicate the search for a solution. On the economic side, insurers are faced with disasters that could jeopardize the financial stability of the entire industry and, as a result, destabilize the U.S. economy. On the political front, there has historically been very little support from legislators in less disaster-prone states for federal involvement in a national disaster insurance program.

Any catastrophic risk program–whether state or federal-based–should promote personal responsibility, support reasonable building codes and land use requirements, maximize risk-bearing capacity of the private markets, and provide quantifiable risk management to the public and private participants.

Another important issue involves regulation of the insurance industry. Without a doubt, the insurance industry is a key component in the recovery of a community following a disaster. Our claims-paying ability jumpstarts the economy. Banks are willing to make loans, businesses re-open, homes are repaired and jobs are created as a result. However, none of this can occur if a heavy-handed approach is applied to regulating private insurers.

Over-regulation has a negative impact on the insurance marketplace. It stifles competition, limits consumer choice, and drives up the cost of coverage.

Proposals that would impose moratoriums on changes to rates and coverage or unduly limit an insurer’s ability to contract or expand their market share unwisely politicize the business decisions companies should be making based on economic realities. And litigation–no matter how meritless–can also have a negative influence on the marketplace.

There are proactive measures that we can take to mitigate the damage from next year’s hurricanes. Building codes have proven to be one of the most cost effective ways to prevent damage, protect property values, and speed the recovery process after a disaster. While Louisiana passed a statewide building code during a special session of its legislature, other states, such as Mississippi and Alabama have work to do in strengthening their code requirements, as does the panhandle area of Florida.

Stronger building codes are of little value unless they are enforced. And state lawmakers must ensure that local building inspection departments are adequately funded and staffed with qualified personnel. The Property Casualty Insurers Association of America is encouraging Congress to provide short-term assistance to states that enact tougher building standards, so that those states can administer and enforce enhanced codes.

The 2005 hurricane season devastated a vitally important region and its wake impacted every American. But it also caused the country to look closely at how major catastrophes should be managed and paid for, and how we can better protect ourselves, both as individuals and as communities, when the next disaster strikes. The record-breaking hurricane season put many issues on the table to debate and find solutions for, and it is our challenge as regulators, industry leaders and citizens to work together to find these solutions.

Greg LaCost is assistant vice president and regional manager for the Property Casualty Insurers Association of America.