Regulators Map A CAT Plan

The California commissioner, an elected Democrat, met with three appointed regulators–Illinois Insurance Director Michael McRaith, also a Democrat, and New York Insurance Superintendent Howard Mills and Florida Insurance Director Kevin McCarty, both Republicans.

Their session in the San Francisco suburb of Burlingame, Calif., was titled the National Catastrophe Insurance Summit. At a press teleconference, they stressed a bi-partisan concern about the nation's ability to deal with the destruction wrought by catastrophes such as Hurricane Katrina.

The regulators disclosed their plan the day before embarking to unveil their catastrophe program concept at the San Diego meeting of the National Conference of Insurance Legislators.

With four of the country's biggest states behind a catastrophe program, regulators said they thought they had enough clout to push their plan with Congress, governors and fellow regulators.

Mr. Garamendi noted that while the program will be presented to the National Association of Insurance Commissioners meeting next month in Chicago, he would not necessarily seek their endorsement. He said that "anything as controversial as this will be difficult to gain unanimity for."

Mr. Garamendi said that, "We will talk to governors and members of Congress to put this issue on their agenda and get the debate going."

Initially the regulators had said they wanted a catastrophe program to include man-made disasters, but after Congressional committees took steps to advance an extension of the Terrorism Risk Insurance Act, Mr. McCarty said they "uniformly support reauthorization of TRIA."

Their program calls for an elimination of the National Flood Insurance Program, which is subsidized by the government.

Other points the regulators mentioned were a push for building code improvements and a national commission to set premium rates and tax deferments for reserves that insurers earmark for catastrophes.

As to concerns that insurers would try to funnel claim reserve monies into their profits, Mr. Garamendi announced: "No way. That money is set aside."

Mr. Mills said a detail to be worked out includes attachment points, or levels of loss insurers would have to sustain for a state backup plan to go into effect. He said he would have to get consensus on any program from New York Gov. George Pataki.

Mr. Garamendi said the goal was to spread the risk across the nation, but "we know not all states want to participate and we're trying to develop a mechanism to deal with that reality."

Certain states, Mr. Mills said, could band together if their size did not warrant an individual state fund.

Mr. McCarty said that whatever program was developed would have to be based on actuarially sound rates, account for regional risks, and embody the best principles of computer science and modeling. Creation of "a national commission makes sense to determine premiums," he said.

The four regulators in the course of their summit met with other regulators, as well as representatives of consumers, state legislators and the insurance industry.

Franklin Nutter, president of the Reinsurance Association of America, said discussion of an overview was easy, but the regulators would have to come up with more details. Specifically, at just what attachment points federal and state backstops would kick in is left to further negotiations, he noted.

The Basics

Regulators are planning a national catastrophe insurance program that:

o Asks the private insurance and reinsurance sector to provide a guaranteed all perils personal lines catastrophe policy.

o Creates a national commission to set premium rates and provide tax deferments for reserves that insurers earmark for catastrophes.

o Has state and federal governments provide a backstop for insurers.

o Contains required building code improvements.

o Requires individual property owners to take steps to mitigate risk.

o Eliminates the government subsidized National Flood Insurance Program.