WASHINGTON–The nation's insurance regulators need to support catastrophe fund legislation because the country cannot afford to wait for the next disaster, a congressman warned them here.
"The crisis is today," said Rep. Tim Mahoney, D-Fla., at the recent meeting of the National Association of Insurance Commissioners.
During the discussion, which took place at the NAIC government relations leadership council session, the measure was questioned by commissioners from non-coastal states.
Mr. Mahoney has co-sponsored the Homeowners Defense Act of 2007 with Rep. Ron Klein, D-Fla.
Their legislation would make it possible for state-sponsored insurance funds to voluntarily pool catastrophic risks with one another and then transfer that pooled risk to private markets through instruments such as cat bonds and reinsurance contracts.
The state funds could individually focus on residents who are unable to obtain insurance.
His measure would also create an insurance stabilization program to provide low interest federal loans to states impacted by severe natural disasters: Liquidity loans allowing a state catastrophe fund to cover its liability if it is not fully funded and catastrophic loans allowing catastrophe funds to cover damages that exceed its liability.
Mr. Mahoney told commissioners that catastrophe coverage is not an issue that should be deferred until the next one hits because the "crisis is today." And, he added it is not just a Southeast problem but rather a nationwide issue.
He also noted that the program would be fiscally responsible and not cause government to go into debt.
Among the points Mahoney detailed during the session were the fact that states would have to set actuarially sound rates for homeowner's contracts held by its residents.
Congressional oversight of the program would not permit politically motivated rates to be established, he continued. The program is also totally voluntary, he said. "If you want to participate, it is there."
The program would access private catastrophe markets and not cause a situation that would require a "bailout that unfairly burdens everyone."
State insurance commissioners questioned him about how the program could impact their states if it becomes law.
Utah Insurance Commissioner Kent Michie noted that Utah is at risk for earthquakes and asked for an assurance that such a risk would be covered. Mahoney responded that "everyone wants to categorize this as a Florida or Louisiana bill. But I've skied in Utah and those mountains got there somehow."
Oklahoma Insurance Commissioner Kim Holland said that in her state wind and hail was an issue and wanted to know how the proposed program would help Oklahoma residents.
And, Tom Sullivan, Connecticut insurance commissioner, expressed skepticism in Washington's ability to manage an effective program given the "failure of the flood insurance program." Mr. Mahoney responded by asking Commissioner Sullivan to put aside his skepticism.
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