Reinsurers Say Storm Proofing Is The Way, Not Subsidies

WASHINGTON--Reinsurance industry trade groups said they are urging state and federal lawmakers to back legislation that promotes storm proofing of homes and land conservation to cut hurricane losses rather than "hidden subsidies."

The statement from the Reinsurance Association of America and the Association of Bermuda Insurers and Reinsurers came as Congress considers reauthorization of the National Flood Insurance Program and other natural catastrophe related measures.

Taking aim at the House version of legislation which reauthorizes and reforms the flood program (H.R. 31210), adding wind damage coverage to the NFIP, the organizations said this would amount to subsidies that "deter the investment of private capital and camouflage the cost of hurricanes to the U.S."

The RAA and ABIR statement is also implicitly critical of the "Homeowners Defense Act of 2007," (H.R. 3355), which has passed the House.

That bill would allow states to pool catastrophe risks, which would then be transferred to the private market through the sale of catastrophe bonds or purchase of reinsurance.

The two reinsurance groups have also created an advocacy group, Americans for Smart Natural Catastrophe Policy, to help in their efforts to forestall the bills.

However, according to industry lobbyists, it is seen as unlikely that the Senate will act on the Homeowners Defense Act, especially since Republican presidential candidate Sen. John McCain, R-Ariz., has voiced opposition to the act, and an amendment adding the House wind provision to the Senate bill reforming the NFIP was soundly defeated.

Talks are underway between the House and Senate on a final version of legislation reforming and reauthorizing the NFIP because the current authorization expires Sept. 30.

But industry lobbyists say that formal talks between the Senate and the House are unlikely despite the fact that the House has appointed conferees for a committee that would reconcile the differing versions of the bill through formal talks.

"We can't wave a magic wand and 'storm proof' all homes, but we can make a great deal of progress," Frank Nutter, president of the RAA, argued in the statement.

ABIR President Brad Kading said in the statement that "research shows that if all the homes in Florida were built to Florida's current building code, the average annual insured modeled losses would be at least 50 percent lower than they are today," and lower claims would mean lower insurance costs.

"A lot can be done to retrofit existing Florida homes in a way that prevents excessive damage from storms and protects the families who live there," Mr. Nutter said.

Mr. Kading added that global property reinsurers paid 47 percent of the cost of damage from Hurricanes Katrina, Rita and Wilma in 2005.

"Reinsurance spreads the cost of hurricane catastrophes to global shareholders rather than confining those costs within the boundaries of the southeastern U.S.," Mr. Kading explained. "It's ultimately less costly for consumers (taxpayers) to pay the cost of insurance today than to have to pay hurricane taxes for bonds and interest that will take 10-to-30 years to pay off."

Besides enhanced state building codes, the groups said they were supporting a bill by Sen. Chris Dodd, D-Conn., designed to promote hazard mitigation with tax incentives. They are also backing Senate legislation designed to assist state and local governments in training building code enforcement staff.