WASHINGTON–American policymakers need to take a more forward-thinking view when it comes to natural catastrophe risk, American Insurance Association President Marc Racicot said today.
Speaking to reporters here at the National Press Club, Mr. Racicot unveiled a series of proposals the AIA believes are necessary to better protect homeowners from natural catastrophe risk and better assist them in the aftermath of a major hurricane.
Among the measures being proposed by the AIA are stricter building codes that are strongly enforced, the inclusion of hurricane risk in land use planning, increased use of actual risk-based pricing and the use of computer modeling in the rate setting process.
Mr. Racicot praised Louisiana officials for enacting stronger building codes in the wake of Hurricane Katrina and applauded attempts by the governor and insurance commissioner of Mississippi to do the same. The effort in Mississippi met with stiffer resistance, however, and those codes were enacted only on a voluntary basis.
Opposition in Mississippi to stiffer building codes, Mr. Racicot noted, shows that seeking to improve catastrophe preparedness is not necessarily easy for politicians, and he acknowledged that the AIA proposals can be "controversial."
They were criticized today by a group that includes Allstate Insurance.
Mr. Racicot said the National Flood Insurance Program is being "bailed out by taxpayers across the country." Such bailouts, he said, have led to an increased appetite in Congress for reforming the NFIP, and more can be done.
"We must expand these efforts, both in scope and depth," he said, to improve catastrophe mitigation.
Additionally, Mr. Racicot called for changes in the legal environment to ensure that insurers are only obligated to pay for what is covered, which has become an important issue as the post-Katrina debate over the application of homeowner policy flood exclusion language plays out in the court system.
"Insurance policies actually are contracts with very specific terms and provisions," he said. "If they can be rewritten after the fact, then all business contracts are at risk."
Mr. Racicot also expressed the AIA's opposition to a proposal, made elsewhere, for a national catastrophe fund system, which would serve as a backup to individual state catastrophe funds.
"Cat funds are post-event tools," he said, noting that such mechanisms unfairly shift the costs of catastrophe risks onto those with lower risk and can also serve as an incentive for high-risk behavior such as building along hurricane-prone coastlines. "We believe in more cost-effective pre-event measures," he added.
Proponents of the cat fund system took exception to Mr. Racicot's view, however, comparing the AIA's proposals to "a car without seatbelts or airbags."
"By failing to include a privately financed catastrophe fund, the AIA plan endorses the risky status quo and depends upon a system of year-to-year reinsurance contracts at ever-escalating prices with no lasting or accumulated protection for homeowners," said Pete McDonough, a spokesman for ProtectingAmerica.org, a coalition of emergency management officials, first responders, disaster relief experts and insurers.
"The only certainty contained in the AIA proposal is higher premiums for homeowners and an alarming dependence on offshore reinsurers and financiers," Mr. McDonough said.
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