The Property Casualty Insurers Association of America made headlines a couple of weeks ago by agreeing to join with ProtectingAmerica.org to fight for a national catastrophe fund. Then they rocked the industry yesterday by announcing they were dropping out of the advocacy group. That's remarkable, but it doesn't surprise me, as insurers appear to be running around like chickens with their heads cut off when it comes to natural disaster coverage.
At least with terrorism, we have a temporary federal reinsurance program in place to make sure another 9/11 doesn't bankrupt the entire industry and take the U.S. economy with it.
But we unfortunately cannot say the same for natural disasters–and that's not likely to change as long as the industry itself is at odds over what to do. Indeed, while insurers are united on extending TRIA protection, they are badly split on how to handle Mother Nature's threats. The debate is devolving into a shouting match.
On one side is ProtectingAmerica.org–backed by Allstate, which wants a federal-state system of funds to backstop insurers after catastrophes. The group thought it had received a badly needed boost by convincing the PCI–led by Ernie Csiszar, former NAIC president–to join their quest, until PCI pulled the rug out from under the alliance. (Click here for the full story.) It couldn't have been easy for PCI to stick with their commitment–not after Liberty Mutual, one of their biggest members, went on record as strongly opposing the cat fund scheme.
PCI's pullout could be the deathblow for the ProtectingAmerica.org campaign. What do you think? Please comment at the end of this blog entry.
The most outspoken critic of the group thus far has been the American Insurance Association, whose senior vice president for public affairs, Julie Rochman, said, “we must move away from a post-disaster spread the risk to everyone across the country mentality, to a system that honestly reflects the higher risks and costs of coastal development.
AIA put forth its own proposal, including risk-based pricing, stricter (and more strongly enforced) building codes, inclusion of hurricane risk in land-use planning, creation of tax-advantaged Catastrophe Savings Accounts, and matching government loss control grants.
ProtectingAmerica.org promptly hammered AIA, contending the group had cobbled a catastrophe response plan that is inadequate, incomplete and insufficient. By failing to include a privately financed catastrophe fund, the AIA plan endorses the risky status quo and depends upon a system of year-to-year reinsurance contracts at ever-escalating prices with no lasting or accumulated protection for homeowners.
AIA President Marc Racicot then bashed political thinking that would have us believe there is an easy way to address these complex issues. Our agenda is based upon proven principles, such as loss prevention and risk-based pricing.
What's tragic is that the opposing positions are not mutually exclusive. While AIA and Liberty Mutual are correct to push for premiums that reflect the risks insurers take in stormy regions, as well as to demand better loss mitigation efforts, are disaster funds such a bad idea in addition to these other steps?
If opponents to Allstate and company don't want to see such risks better spread, what is their alternative, given the chronic shortage of capacity in cat-prone regions? Also, cant the same argument opponents make against a cat fund hold true for TRIA, as skeptics claim terrorism only threatens major cities, such as New York?
I am not prepared to endorse creation of a national disaster fund, but I dont want to see the idea shouted down this early in the debate.
Congress can't stand insurance, and they won't budge on any related issue if the industry is split. That leaves us with the status quo, which is unacceptable. It's time to stop yelling at one another and start talking about an acceptable compromise package Congress can pass.
What are your thoughts?
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