U.S. Must Brace For CATS Or Face Ruin: Study

Insurers going broke and a resultant national economic upheaval are "highly likely" unless state and federal governments, the public, and insurers take steps to reduce the impact of catastrophe losses, according to a consulting firm analysis.

The study -- by Needham, Mass.-based TowerGroup -- calls for actions to halt growth in areas susceptible to natural catastrophe, reward disaster-resistant building, bolster insurer reserves and reinsurance backups, and improve flood coverage.

According to the author of the study -- Karen Pauli, a senior analyst with TowerGroup's Insurance research practice -- all interested parties must work in concert "to effect the long-term change needed to reduce the risk posed by today's catastrophe landscape."

Among the specific recommendations in the report:

Government tax credits to insurance carriers that set aside funds for catastrophe claims.

Federal laws requiring state building codes that mandate buildings with strength to withstand certain catastrophe levels, and excluding aid to states that fail to pass minimum building codes.

Tax credits on the purchase of catastrophe-resistant features or for retrofits against catastrophe.

Overhaul of the National Flood Insurance Plan to reflect current real estate values and eliminate subsidies for individuals whose properties are repeatedly damaged by catastrophes.

Develop new insurance products and consumer education programs to improve the response to catastrophe risk and change the unsafe activities of policyholders.

TowerGroup said Paul's research report -- entitled "Property and Casualty Insurance" -- will be followed by a complementary report on how insurers can leverage technology in support of their catastrophe management efforts.

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