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

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 no shortage if you are willing to pay the price,” hesaid.

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 that market forces could not be relied onoverall, since reinsurers are able to charge what traffic willbear, while their primary counterpart must face state approval fortheir rates.

As for future solutions, Mr. Collins said an all-perils policymight provide an answer for debates arising out of disputes overinsurers' denial of storm surge claims on grounds they are flooddamage that is excluded by policy language and covered by theNational Flood Insurance Program.

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

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

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