WASHINGTON–Two studies released by an actuarial consulting firmdealing with government approaches to catastrophe risk are beingcondemned by industry experts as flawed and conflicted.

The studies, conducted by Milliman Inc., deal with the potentialimpact of recent legislation in Florida designed to bring down thecost of homeowner's insurance, and a federal catastrophe fundproposal being advanced by a newly created advocacy group.

Robert Hunter, director of insurance for the Consumer Federationof America, said the two studies by Milliman analysts are“conflicted.” He explained that Milliman touts the studies as“independent,” but “they don't make sense” because they use what'shappening in Florida to draw two different conclusions.

Based on the two studies, Frank Nutter, the president of theReinsurance Association of America, said that creating federalcatastrophe backstops based on Florida's “government-centricapproach” to catastrophe risk insurance is “seriously flawed.”

In his comments, Mr. Hunter said it is “impossible for bothreports to go out without being in conflict.”

The first report, by the Seattle-based firmProtectingAmerica.org, says that if its proposal is enacted, itwould save homeowners $11.6 billion annually.

ProtectingAmerica.org is a newly created advocacy group stronglysupported by Allstate Insurance Company, among other sponsors, thatproposes the government help reduce the cost of catastrophicnatural disasters by providing tax incentives that would allowinsurers to establish state-based catastrophe funds.

Another part of the plan would be the creation of a nationalbackstop in addition to the traditional insurance market.

“Part of the beauty of this approach is that residents ofrisk-free states would not pay a dime to a catastrophe fund,” JamesLoy, former deputy secretary of the Department of Homeland Securityand a retired Coast Guard Admiral, said at a Monday conference.“This would significantly reduce the current cross-subsidy thatoccurs when the federal government steps in to repair and rebuildin the aftermath of regional catastrophes.”

Mr. Hunter said the study projects that states would save $5billion. The table it includes shows Florida with zero additionalsavings, implying that the recently enacted Florida plan hasalready created a savings for consumers, according to Mr.Hunter.

But the other Milliman study on the recently enacted Floridalaws, commissioned by the Property Casualty Insures Association ofAmerica, “implies Florida is a time bomb waiting to go off.”

The study says, among other findings, that the reforms have thepotential to put Florida's credit-rating at risk, Mr. Hunter noted.It also says that businesses and auto insurance customers would beforced to pick up the cost of reducing the rates for Floridahomeowners who live in coastal areas.

“One study holds up Florida as a model,” Mr. Hunter says, “whileanother points out Florida as a potential disaster.”

In other words, Mr. Hunter says, “the studies are totallyconflicting, and both say they are 'independent'. It just doesn'tmake sense.”

Mr. Nutter, a senior trade group official who rarely criticizesindustry proposals in public, said that taken together, the twostudies “demonstrate that you can change insurance laws, but youcannot change the laws of disaster economics or the laws of naturewith political science.”

Mr. Nutter called Milliman a “highly respected firm” andasserted that it is “one of the world's premier actuarial andconsulting firms.”

He said a Milliman study on Florida cat risk that wascommissioned by the Property Casualty Insurers Association ofAmerica (PCI), documents that Florida is simply shifting riskthrough new legislation aimed at reducing the cost of homeowner'sinsurance in the state's coastal areas.

Under the program, the cost of insuring the state's coastaldevelopment would be borne by low- and moderate-risk insureds incentral and northern Florida–including automobile policyholders,municipalities, school boards, day care centers and commercialbusinesses, whether or not they have any catastrophe risk–insteadof spreading risk among private reinsurers operating in globalcapital markets.

He alleged that the Milliman study confirms the Florida cat fundis provided for at below actuarially sound rates and depends mostlyon debt financing, not risk-based premiums.

“The debt would be paid from future assessments/taxes on nearlyall insureds, in essence, mortgaging the future of the Floridaeconomy and home ownership in the state,” Mr. Nutter said.

“The irony of Florida,” noted Nutter, “is that small commercialbusinesses, homeowners, and automobile insurance consumers nowinsure Florida's insurance companies,” he explained.

Regarding a Milliman study on federal catastrophe legislationcommissioned by ProtectingAmerica.org, Mr. Nutter said the federalapproach supported by ProtectingAmerica.org is designed toencourage other states to adopt Florida-style government programsand shift risk from the books of insurers to taxpayer-backed stategovernment funds and then to the federal government.

Mr. Nutter argues that the ProtectingAmerica.org proposal alsointroduces the notion that a Florida-style government fund willprovide funding for various disaster preparedness and firstresponder efforts.

According to Mr. Nutter, “This is likely a hollow promise, giventhat state funds are likely to be debt-financed (as the Floridafund is now) and will be for the foreseeable future.”

Milliman's study on federal catastrophe legislation concludesthat consumers nationwide may also save money in exchange forcreating numerous state government bureaucracies to take on thecatastrophe risk.

Nutter disagrees, suggesting, “Nothing in the Florida gambleshould be a role model for other states.”

Mr. Nutter called it a “high risk financial wager, mostlydependent on luck as far as nature is concerned.” Mr. Nutter addedthat he thought the proposal “threatens the state's fiscal standingand burdens insureds with taxes and surcharges for years.

“Except for the few insurers who will benefit from shiftingcatastrophe risk from their accounts to taxpayer-backed governmentfunds, including those that are members of ProtectingAmerica.org,there are no other clear beneficiaries–not the state, not insuredswithout coastal residential exposure, and not insured motorists orcommercial businesses,” Mr. Nutter added.