The rift within the property-casualty insurance business over how much government help, if any, the industry needs to handle catastrophes widened considerably last week as the war of words heated up.

Indeed, trade organizations and carriers continue choosing sides in what promises to be a fierce battle, with the Property Casualty Insurers Association of America announcing it was joining ProtectingAmerica.org. The group, supported by Allstate, seeks a federal-state system to backstop insurers after mega-catastrophes.

Under the group's plan, a portion of property insurance premiums corresponding to catastrophic risk would be deposited into catastrophe funds, where they would grow tax free. No tax dollars would be used to support the funds, and insurers could not use the money for any purpose other than to pay claims from catastrophes that exceed a certain threshold.

Opposing this point of view is the American Insurance Association, along with Liberty Mutual, which is one of the largest members of PCI.

PCI said it joined ProtectingAmerica.org because the move will "advance its commitment to find a comprehensive solution for catastrophe management."

ProtectingAmerica.org wants to increase public awareness and consumer education; advocate for better coordination with local, state and federal mitigation and recovery efforts; as well as strengthen emergency response and financial mechanisms to rebuild after a major catastrophe.

One of its goals is to persuade Congress to provide tax incentives for insurers to create catastrophe reserves to better help the industry cushion itself against a huge loss from a single event or group of events.

PCI President and CEO Ernst Csiszar explained his group is joining ProtectingAmerica.org because "eight of the 11 largest U.S. catastrophes have occurred in the last five years, and with warnings that more frequent and furious storms are likely to hit our coasts in the near future, and the increasing potential for earthquakes in America's heartland, the evidence is clear that America is at risk."

Mr. Csiszar added that "by coupling our ongoing efforts with the commitment of ProtectingAmerica.org, we can continue shaping solutions that address this problem before it is too late."

However, an AIA official said the group has both philosophical and practical concerns about the ProtectingAmerica.org approach. "The reason we are not joining is that while we agree with ProtectingAmerica.org on the need for better preparation and loss prevention to keep people and property out of harm's way, we think 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," said Julie Rochman, senior vice president for public affairs at AIA.

Last week, AIA outlined its own game plan for dealing with catastrophes, calling for the creation of a host of new laws and rules to encourage citizens to take hurricane loss prevention into their own hands. Highlights of the new AIA proposal include:

o Increased use of actual risk-based pricing and the use of computer modeling in the rate-setting process.

o Stricter building codes that are strongly enforced, as well as the inclusion of hurricane risk in land use planning.

o Creation of tax-advantaged Catastrophe Savings Accounts.

o Establishment of state and/or federal matching grants designed to encourage property owners to invest in loss prevention tools, such as hurricane-resistant garage doors and window shutters.

o Federal and state assistance to improve procedures related to claims adjusters to facilitate payments to disaster victims.

Liberty Mutual cited a recent op-ed commentary in The Wall Street Journal by Edmund Kelly, its chairman, president and CEO, as representing its views. "Instead of looking to government to create special funds, private insurers and the public should press to reduce the costs of natural disasters before they occur," Mr. Kelly said.

He suggested they "explore incentives for homeowners and businesses to make their properties mostly storm-proof; find better ways to protect infrastructure; encourage building-code improvements; and develop sensible land-use planning to control construction in the most vulnerable areas."

Mr. Kelly also cited the need for "regulatory processes...to allow insurance pricing to better reflect risks. Those who choose to live in catastrophe-prone areas should not be shielded from the consequences of their decisions by raising prices for people who opt for less risky locations."

ProtectingAmerica.org last week announced it would be pushing its initiatives with an advertorial campaign featuring full-page, opinion-oriented ads in The Wall Street Journal, The New York Times, The Washington Post and Washington Times.

The group said its campaign will highlight its Web site, www.protectingamerica.org, and advocate support of H.R. 4366--The Homeowners Insurance Protection Act, introduced last year by U.S. Rep. Virginia Brown-Waite, R-Fla. The group is led by former Federal Emergency Management Agency Director James Lee Witt and former Deputy Secretary of the U.S. Department of Homeland Security James M. Loy.

"Catastrophe preparation is not strictly a consumer burden. Legislators throughout the country must recognize the need to better address how America prepares itself for catastrophe--before the next one strikes," said Mr. Loy, a retired Coast Guard admiral.

AIA and ProtectingAmerica.org clashed the week before last after AIA introduced its own catastrophe proposal. The group said AIA 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 responded to ProtectingAmerica.org's jab by saying, in a statement: "We part ways with Allstate and their organization where they singularly focus and exclusively promote post-event subsidized funding for catastrophes through a national 'cat fund.'" He said the nation must move "from this failed post-event mentality to an active prevention and protection mode."

"The only certainty contained in the AIA proposal is higher premiums for homeowners and an alarming dependence on offshore reinsurers and financiers," according to Peter McDonough, a ProtectingAmerica.org representative.

Mr. Racicot countered that AIA's proposed program goes beyond the current "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."

Mr. McDonough said that "defending the status quo--counting on record-setting rate increases, crossed-fingers and hoping for the best--shortchanges American families."

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Insurers Choosing Sides Over Disaster Proposals

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