Cat Fund Group To Kick-Off N.J. Chapter

An organization devoted to developing a national insurance catastrophe backstop program will begin a push with individual states by opening a New Jersey chapter to lobby for creation of a state cat fund.

Tomorrow, James Lee Witt, former Federal Emergency Management Agency director during the Clinton administration and current co-chairman of ProtectingAmerica.org, will announce, in Trenton, N.J., the formation of its affiliate, ProtectingNewJersey.org.

The announcement comes just weeks after state Assemblyman Michael J. Panter, D-Mercer and Monmouth Counties, and vice-chairman of the Assembly Financial Institutions and Insurance Committee, introduced a bill to create a state catastrophe fund.

The bill, A3236, would have the state appropriate $10 million in seed money for creation of a fund to cover natural catastrophes in the state. Insurers would make an initial premium payment of $1,000 to help start-up the fund with larger payments to follow.

Under the bill, insurers would pay premiums into the plan based on calculations done by the state treasurer as outlined in the bill. Insurers can purchase reimbursement coverage for 90, 75 or 45 percent above their retention. The carriers' retention would be based upon a complicated formula outlined in the bill and calculated by the treasurer.

The fund would provide 100 percent coverage above retention if it collects federal backstop or reinsurance monies above the funds capacity.

Funds within the plan would be used for no purpose other than to pay insurers. However, the state legislature could appropriate 10-to-35 percent of investment fund income, provided the fund has no outstanding obligations, for use by state, local, public and private authorities to improve emergency preparedness.

Kerri Danskin, spokeswoman for Mr. Panter, said the bill is aimed at protecting New Jersey policyholders from the soaring rates that Southern United States property owners have seen since Hurricane Katrina.

She said insureds would see some premium increase as a result of the program, but the increase would be less than the cost of having nothing in place and sustaining a devastating hurricane strike on the coastline.

"I'm not sure what the effect on rates will be, but it would be a heck of a lot less expensive than insurers relying on the reinsurance market," observed Ms. Danskin.

Pete McDonough, a spokesman for ProtectingNewJersey.org, said the New Jersey bill is based upon a model bill introduced by the National Conference of Insurance Legislators and is similar to one pending in New York. He said the group's aim is to garner support for the bill in both the state Assembly and Senate, and to find a sponsor for the bill in the Senate.

Both Ms. Danskin and Mr. McDonough were hopeful that the fund would become a reality before the end of the year, possibly before the end of this hurricane season.