The National Association of Insurance Commissioners approved a resolution last week calling for Congress to create a commission to explore national solutions to cover mega-catastrophe risks.
The vote culminated more than six months of debate following last year's record insured storm losses, with state regulators intrigued by proposals for new mitigation incentives, as well as state and federal catastrophe funds, to help provide more mega-catastrophe coverage.
The insurance industry has supported some of the mitigation proposals, but has actively opposed or remained ambivalent on the creation of state and federal disaster funds–with the notable exception of Allstate, which has spearheaded a public relations effort in favor of them.
At the NAIC's plenary meeting here, Ohio Insurance Commissioner Ann Womer Benjamin expressed concern that the resolution seemed to ask Congress to enact solutions that could perhaps be addressed in the states.
However, Florida Insurance Commissioner Kevin McCarty, the sponsor of the resolution, said there are certain things only Congress can accomplish, such as the creation of a federal backstop fund.
When the program was first proposed earlier this year, it contained a provision for a so-called all-perils policy in which carriers would cover flood risk, now covered under the National Flood Insurance Program. The industry–including Allstate–protested vigorously, and the proposal was soon modified to work more in conjunction with the federal flood program.
The fact that up to half of homeowners affected by the 2005 storms were said to be without coverage was reported to be the impetus behind the measure.
Mr. McCarty said the federal government's role as a backer of the mortgage market should give Washington an interest in ensuring that properties have sufficient coverage in the event of a catastrophe. "We want to elevate this discussion on a national level, because we are going to pay for this if people walk away from their mortgages," he said.
"We see so many people in the Katrina-Rita situation that were either uninsured or underinsured, and we have $12.5 billion in block grants from the federal government going to rebuilding homes. This is a bad formula for how people are going to behave in the future," Mr. McCarty added.
California Chief Deputy Insurance Commissioner Rick Baum said the recent unwillingness of some insurers to cover catastrophe risk has created a federal problem. "If you don't have a program that provides some kind of certainty to the insurance carrier in terms of mega-catastrophe, they are going to get out all together," he said.
Mr. Baum added that perhaps the insurance companies' reluctance to endorse federal and state funds was that the certainty they would provide the marketplace might invite new competition.
As for the next step, the commission that the resolution calls for has already been proposed by two Democratic U.S. senators–Bill Nelson of Florida and Mary Landrieu of Louisiana. There are also several flood program reform measures under consideration in the U.S. Senate.
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