While Allstate is unilaterally solving its problem insuring thehurricane peril, the industry needs to unite to solve the biggerissue impacting the entire U.S. economy, the carrier's incoming CEOcontends.

Everybody is fixated on their own positions–the free marketadvocates, those who say government should solve the problem, andthose who simply advocate fixing building codes–said Thomas Wilson,president and chief operating officer of Northbrook, Ill.-basedAllstate, during the 18th Annual Executive Conference for theProperty-Casualty Industry in New York.

“All sides are right, but people refuse to acknowledge thatothers are right,” he said, adding that “we need to come out of ourcorners” to align the factions within the insurance industry for aworkable solution that involves elements of all these ideas.

“We have to give up the purity” of entrenched positions, andinstead “engage in the art of reality,” he said, noting thatconsumers and legislators are confused by internal industrybattles. “They need a solution to a system that does not work,[and] we need to give it to them.”

He noted Allstate's support of ProtectingAmerica.org, abi-partisan, broad-based coalition backing a system that wouldlayer state and federal backstops on top of private insurance. Hiscomments came during a panel discussion on catastrophe management,which followed a keynote address by Liberty Mutual CEO EdmundKelly, during which Mr. Kelly said he adamantly opposed federalgovernment involvement in insuring natural catastrophes. (Seerelated story, page 7.)

Mr. Wilson said that “some people think TRIA is the mostimportant problem. We don't think that's the case,” noting that theU.S. Department of Homeland Security ranks terrorism risk not muchhigher than hurricanes.

Bottom line, he said, Allstate isn't saying the issue iscritical because it is important to Allstate. “We're going to fixour problem,” he said, noting that insurers such as Allstate are“getting smaller everywhere around the country”–by offering lesscoverage, raising deductibles, lowering limits and not renewingcustomers in cat-prone areas.

Still, at least one-third of Americans have their fortunes tiedto their homes, representing their largest assets–which they arecounting on to fund their childrens' educations and their ownretirement.

That makes insuring catastrophe risks a political issue, hesaid. When Americans lose this asset in a disaster because of lackof insurance, they will look to the government or private carriers,“whether or not we have extended coverage,” he added.

“The government is in the risk assumption business,” he said,noting that the government paid out $100 billion in the aftermathof Hurricane Katrina, and that there is no fairness or economicrationale involved in how government doles out such relieffunds.

So, not just insurance industry solvency is at risk, he said,explaining that the issues of consumer net worth and the fair andequitable manner of government support make this everyone'sproblem.

After Mr. Wilson described the national problem, Terry Lisotta,CEO of Louisiana Citizens Property Insurance Corp., gave attendeesa vivid picture of the local problems experienced by those who workfor the residual market.

First he described how the company's disaster plan wentimmediately into effect exactly as intended a few days beforeKatrina hit. The workers left New Orleans and relocated to BatonRogue. “Our problem was that we thought we were on a three-hourcruise,” he said, noting that the relocation actually lasted untilMay of this year.

That office, which was set up for six people, had to accommodate48, he said, adding that five divisions of the company worked outof that single office.

Beyond that, he reported, “we had bomb threats. We had folksthreatening to kidnap my employees until I paid [theirclaims].”

In addition, there were problems encountered in getting claimchecks out to people. For example, he described an effort to carvea system just from claims out of an existing policy managementsystem.

“Our original intent was to manage one database. We wound upmanaging 10,” he said, noting that these involved information fromUPS, Federal Express and DHL, which helped in sending checks allover the country.

This process was complicated by the fact that while“policyholders were very diligent” in telling Citizens where theymoved “the first time” after Katrina, when they later relocated asecond time, they didn't notify the company, he said.