Hartford Proposes National Cat Plan Featuring Federal Backstop, IRA-Type Fund

The Hartford last week launched a campaign to promote its new public-private plan to deal with natural catastrophes, which would include a federal backstop for insurers and an IRA-like vehicle to allow homeowners to save for disaster expenses.

The company is calling its "national outreach effort" the Coastal Catastrophe Partnership plan, and said it is designed to deal with the "looming economic crisis posed by a major hurricane."

Chief Executive Officer Ramani Ayer said he has begun conversations with members of Congress about his company's multifaceted initiative. He said he is also having discussions with the ProtectingAmerica.org. group--backed by Allstate--which has advanced its own catastrophe plan that calls for state disaster funds, backed up by the federal government.

He said he views his plan as a middle ground for government involvement, between the "socialistic" efforts of some in Congress, and reinsurers who believe all catastrophe protection should be left to the private market.

Further along, Mr. Ayer said he hoped to see about getting specific lawmakers to develop a bill around his plan.

Among its many elements, the plan would:

o Create IRA-like savings vehicles--"Supplemental Catastrophic Security Accounts"--for working families and retirees.

o Require coastal homeowners to buy flood insurance, possibly by inserting flood coverage as part of the standard HO policy.

o Ensure that coastal homeowners pay the actual cost of their risks, providing them with an incentive to strengthen their homes.

o Establish a federal backstop for insurers when hurricanes cause a 1-in-100-year loss.

o Encourage the private market by having states create their own reinsurance funds, pass on federal backstops and state reinsurance fund costs to policyholders, and limit state reinsurance activity to times when the private market seriously diminishes.

Mr. Ayer said that another catastrophe along the lines of Hurricane Katrina would be an extreme challenge to state and local economies, adding that adoption of The Hartford's plan could mitigate the exposure.

"While it may be ambitious and politically challenging," Mr. Ayer said in a written statement, "we are convinced that it is the best path to a national solution--one that retains the critical role of private insurance, minimizes taxpayer cost and ensures quick recovery following a catastrophe."