In a survey of the top dogs attending last month'sProperty-Casualty Insurance Joint Industry Forum, all but three ofthe 100 responding said Congress would not adopt a NationalCatastrophe Insurance Plan this year. “I voted three times,”quipped Ed Liddy, chairman, president and CEO of Allstate, which isaggressively pushing an ambitious catastrophe initiative.

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Allstate's proposal would establish a federal catastrophereinsurance fund to back up state facilities. It would beprospectively funded by private carriers paying actuarially soundrates, insists Mr. Liddy.

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While his peers on a panel of insurer big shots at the forummumbled kind words about Allstate's intentions, Mr. Liddy knows hehas a steep uphill climb ahead, and that most insurers are notbehind him. The debate promises to be nasty if the cat fight thatbroke out last month is any indication.

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Criticism came from two angles–one, that the plan is across-subsidy of high-risk areas by low-risk regions; and two, thatthe private market is managing fine without governmentintervention, thank you.

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David A. Smith, director of ProtectingAmerica.org–anorganization politically and financially supported by Allstate–wasquick to counter-attack, dismissing industry opposition as“shortsighted and misinformed.”

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“To in any way contend that a privately funded backstop issomehow a 'subsidy' is flat out wrong,” he said. “We are supportinga privately-funded federal backstop with money coming from therevenues of participating insurance companies.”

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Insurers should “do the math,” added Mr. Liddy, contending thatnew capital coming into the industry is not nearly enough to makeup for what's been lost the past two disaster-prone years.

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However, the American Insurance Association, for one, wasunimpressed as Julie Rochman, a senior vice president, argued that“the private market has worked and can continue to work…”

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She also warned that “in the private market, a reinsurer issupposed to determine how much to charge for a risk. If they arewrong, then the reinsurer is responsible for the loss. If a federalprogram guesses too low, then the taxpayers bear those losses.” Shecited the National Flood Insurance Program as the poster child of afederal coverage gone awry.

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The bottom line, as always, is dollars and cents. “There issimply not enough capital, not enough money in the system,” arguesMr. Liddy. “The insurance industry is not built to handle thesetypes of events.”

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Yet despite record catastrophe losses, the industry managed topost nearly $29 billion in net income through nine months, thanksin large part to reinsurers paying a big chunk of disasterclaims.

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This doesn't mean we live in a perfect world. The “good hands”people at Allstate–who paid out over $3 billion in hurricane claimslast year–are no longer writing new business in many disaster-proneareas. The carrier argues that a federal reinsurance fund wouldallow more insurers to write business in such regions. Are theycorrect, or would such a fund discourage private reinsurers fromwriting the exposures?

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My gut tells me that Allstate's plan, while self-serving, isworth debating. If it is true, as many warn, that climate changeswill result in more frequent and severe hurricanes, the privatereinsurance market will be hard put to handle many more years likethe last two monsters.

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Plus, in this, the 100th anniversary year of the Great SanFrancisco Earthquake, it is not a bad idea to stop and rethinkwhether how we insure catastrophes–natural or man-made–could beimproved before we're overwhelmed by the next event of biblicalproportions.

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