Taylor Aide Says AIA Report Has Phony Numbers

WASHINGTON--A key congressional staff member, it was learned, has castigated the American Insurance Association for releasing what he said is bogus data in fighting legislation requiring the National Flood Insurance Program to add windstorm coverage.

The fiery reaction from Brian Martin, policy director for Rep. Gene Taylor, D-Miss., came yesterday after AIA released a consultant's estimate that the measure could cause a $200 billion NFIP deficit.

Mr. Martin fired off an e-mail to a lobbyist for the group saying AIA had "cooked" the numbers in the consultant's report. A copy of the message was obtained by National Underwriter.

In his e-mail, Mr. Martin suggested that Stamford, Conn.-based Towers Perrin's study drew its conclusions based on faulty assumptions it made about the program's scope if windstorm is added.

"Wow. You really cooked the books on that one. Are there no professional standards in the actuarial industry?" said his message to Melissa Shelk.

Mr. Martin wrote that Towers Perrin assumed wind premiums would be set 20 percent lower than annual loss estimates would require. "I assume we would use RMS or other risk models' annual loss estimates to set premiums," he said in the e-mail. "There, I solved the problem."

Mr. Martin added that in its analysis, to "further cook the numbers," Towers Perrin projects what would happen if the new program captured 100 percent of the wind market with the 20 percent discount in premiums, or captured the highest-risk 20 percent of the market but did not charge higher premiums in high-risk areas than they would have charged in low-risk areas.

"Neither of those scenarios is even possible under the bill, much less likely," he said. "Why not ask for an honest assessment of the bill?"

Mr. Martin's boss, Rep. Taylor, is sponsor of the legislation (H.R. 920) calling for the NFIP to provide all-perils coverage including wind. His bill follows a conflict with his insurer State Farm over a wind-damage claim for a home destroyed by Hurricane Katrina. Mr. Taylor's claim was settled after he filed a lawsuit.

The Towers Perrin study was released in advance of a Tuesday hearing on Rep. Taylor's legislation before the Housing Subcommittee of the House Financial Services Committee.

Copies of the study were sent to the leadership of both the House subcommittee and the parent committee by Mark Racicot, president of the AIA.

The study by the consulting firm said that in some scenarios, "deficits from catastrophic wind events to the NFIP in a single year could be $100 billion to $200 billion, or potentially even higher."

Mr. Martin's e-mail said he is "embarrassed for Towers Perrin and for Gov. Racicot that they would put their names on such a ridiculous report."

"What we are proposing is not radical," Mr. Martin said. "Your members already are dropping millions of policyholders and enrolling them in state wind pools and other state-sponsored residual markets. It really is not rocket science to add wind coverage to flood coverage in hurricane risk areas in a fiscally responsible manner."

In response to Mr. Martin's e-mail, Stephen Lowe, managing director of the p-c consulting practice at Towers Perrin, said he was "taken aback by the tone of Mr. Martin's comments." He added, "Our work was prepared within actuarial standards, and we certainly stand by the work."

Dennis Kelly, a spokesman for AIA, said, "We respectfully disagree [with Mr. Martin's comments] and hope the analysis is part of the discussion at the hearing."

Mr. Kelly added that the actuarial analysis by Towers Perrin "necessarily made assumptions about the proposed program, and those assumptions were based on a careful observation of the private property insurance market in coastal states."

"Our experience with the NFIP, as was recently confirmed by the Congressional Budget Office, is that legislation requiring that rates for a federal insurance program be based on actuarial principles does not guarantee rate adequacy," he said.

The upcoming hearing will be chaired by Rep. Maxine Waters, D-Calif. The letter was addressed to Rep. Waters; Judy Biggert, R-Ill., ranking minority member of the subcommittee; Rep. Barney Frank, committee chairman; and Rep. Spencer Bachus, R-Ala., ranking minority member of the full committee.

"In our view, the results are troubling, especially to those who are concerned about the ultimate costs of an expanded program to our nation's taxpayers," Mr. Racicot said in a letter to the House panel.