Proponents and foes of a larger federal role in insuring mega-catastrophe risk clashed Saturday at a forum in Napa, Calif. during the annual meeting of the National Conference of Insurance Legislators.

The core disagreement centered on the general efficacy of state insurance funds, and by implication a new federal one, to backstop insurance risk posed by events on the scale of Hurricane Katrina.

Ed Collins, counsel for Allstate Insurance Company, said the Florida Hurricane Catastrophe Fund saved state policyholders an average of $500 on premiums last year.

But Andrew Castaldi, senior vice president for Americas Hub Swiss Reinsurance Group, based in Armonk, N.Y., said that such funds concentrate too much similar risk in a given area and end up merely 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 doing its job, which is paying out claims.”

Mr. Castaldi objected to the notion that there is some sort of capacity crunch, likening the claim to a consumer who feels there is a gas shortage if the price goes over $3 a gallon.

“There is no shortage 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 market share with unsustainable pricing.

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

As for future solutions, Mr. Collins said an all-perils policy might provide an answer for debates arising out of disputes over insurers' denial of storm surge claims on grounds they are flood damage that is excluded by policy language and covered by the National Flood Insurance Program.

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

This article originally appeared in The National Underwriter P&C. For the complete article, please click here.

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Insurance Forces Clash Over Role in Catastrophes

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