Proponents and foes of a larger federal role in insuringmega-catastrophe risks clashed here during a meeting of theNational Conference of Insurance Legislators.

The core disagreement centered on the general efficacy of stateinsurance funds–and, by implication, a new federal one–to backstopinsurance risk posed by events on the scale of HurricaneKatrina.

Ed Collins, counsel for Allstate Insurance Company, said theFlorida Hurricane Catastrophe Fund saved state policyholders anaverage of $500 on premiums last year.

But Andrew Castaldi, senior vice president for Americas HubSwiss Reinsurance Group, based in Armonk, N.Y., said that suchfunds concentrate too much similar risk in a given area, and end upmerely postponing costs to another day.

“Look at the FHCF now. It is essentially broke,” he said.

Mr. Collins responded: “It is broke because it has been doingits job, which is paying out claims.”

Mr. Castaldi objected to the notion that there is some sort ofcapacity crunch, likening the claim to a consumer who feels thereis a gas shortage if the price goes over $3 a gallon. “There is noshortage if you are willing to pay the price,” he said.

The only companies he won't insure, Mr. Castaldi said, are those“merely looking for an exit strategy” by grabbing quick marketshare with unsustainable pricing.

Mr. Collins said market forces could not be relied on overall,since reinsurers are able to charge what the traffic will bear,while their primary counterpart must face state approval for theirrates.

As for future solutions, Mr. Collins said an all-perils policymight provide an answer for debates arising out of disputes overinsurer denials of storm-surge claims on grounds they are flooddamage–thus excluded by policy language and covered by the NationalFlood Insurance Program.

“Are you beginning to see the possibilities opening up ifinsurers get the comfort level to take on new risk?” he said.

In other NCOIL news, the group approved a revised market conductmodel surveillance act that attempts to eliminate some regulatorydiscretion when it comes to insurance company examinations.

The revision effort stemmed from the state lawmakers'dissatisfaction with the current model, which was crafted with aneye to meeting regulators' concerns and securing joint sponsorshipwith the National Association of Insurance Commissioners.

But lawmakers said the fact that the model has garneredvirtually no interest in state legislatures indicated it was timeto go back to what they were originally seeking in terms oflegislation.

The revised model strengthens requirements that commissionersrecognize other states' rights to oversee market conduct of thecompanies domiciled in their state under a concept known as“domestic deference.”

An amendment proposed by the American Council of Life Insurerscurbs the right of a commissioner in a carrier's state of domicileto reject the findings of another state's market conduct probe ifthey initially agree to the inquiry.

It also mandates that any such investigation or examination beconducted on the basis of some market analysis data, and not simplyat the discretion of the commissioner.

Iowa Insurance Commissioner Susan Voss, who also chairs the NAICMarket Conduct Committee, was at the NCOIL meeting and signed offon all the changes, asserting they were in the spirit of theefforts her committee was undertaking to streamline the marketconduct system.

But she expressed little enthusiasm for taking the reviseddocument back to the NAIC for joint approval, as the originalcompromise model was approved by a divided NAIC plenary body.

Neil Alldredge, senior vice president for the NationalAssociation of Mutual Insurance Companies, said the new bill was animprovement, and his group would actively support it in stateswhere it would represent an improvement over the currentsystem.

Unlike the last effort, consumer groups played a small role indeveloping the new model.