The proposed National Association of Insurance Commissioners mega-catastrophe plan centering on an “all-perils” policy will “exacerbate the problems it seeks to correct,” according to a property-casualty trade group.
The National Association of Mutual Insurance Companies, based in Indianapolis, said in comments to the commissioners that if the price for this new policy is determined by government fiat, then “coverage for property owners in high-risk regions would likely be subsidized by property owners in low-risk regions.”
Robert Detlefsen, NAMIC public policy director, said that “unless all homeowners are required to purchase an identical all-perils policy, the plan will lead to adverse selection.”
That would happen when a disproportionately larger number of high risk buyers purchase the plan, he said.
“The plan would increase the potential loss costs from natural disasters by decreasing for risk mitigation and aggravating moral hazard,” Mr. Detlefsen said.
The plan proposed primarily by Florida Commissioner Kevin McCarty would include public-private partnership that would comprise of state and federal backstops for mega-catastrophe loss similar to the Terrorism Risk Insurance Act mechanism.
Mr. McCarty hopes to see a vote by the full NAIC body at the group's spring meeting in early March.
The all-perils policy would for the first time since 1968 include flood loss to some degree, which has aroused the most vocal opposition from the industry.
For example, Allstate, which has been a major proponent of the backstop portion of the program, takes a dim view of the flood risk aspect, said company representative Jim McCabe.
The American Insurance Association immediately opposed the program while the Property Casualty Insurers Association of America (PCI) is still weighing it. Allstate is a leading PCI member.
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