D.C. Chief Hampton Backs Terrorism Insurance, But Not National Cat Plan

March 6, 2007

Renewal of the federal Terrorism Risk Insurance Extension Act is “very, very important” for the District of Columbia, yet a federal government plan to help cover natural disasters would be unfair, in the eyes of the insurance regulator who works in the shadows of Capitol Hill.

“If we have a situation where TRIEA isn’t extended past Dec. 31, 2007, we believe that the District is going to be adversely affected,” according to Thomas Hampton, commissioner of the District of Columbia Department of Securities, Insurance and Banking.

Regarding terrorism, he said, “I think this is … an attack on the nation. We all should be a part of this. That’s why I believe that TRIEA should be extended….”

However, Hampton thinks a federal government backup for natural disasters would probably be unfair to residents outside disaster-prone areas.

“The national catastrophe is a little different in the sense that some of the people in certain jurisdictions, especially in the Florida area and others, are staying mostly on the coastline. … These people choose to stay in that very vulnerable area. I know a lot of people in the Midwest and other places who don’t have these types of risks would say they need to pay an additional premium for the additional risk that they have out in the marketplace,” he said.

Hampton acknowledged that D.C. policyholders are lucky compared to those in some other states. “Availability and affordability of property insurance isn’t as bad in Washington as it is in the Gulf Coast and some of the Northeast. We’re very fortunate there,” he said.

Hampton, who was reappointed to his multi-jurisdictional post by Mayor Adrian M. Fenty in January, shared his views on terrorism insurance and a natural disaster plan during an interview with Insurance Journal, one in the series with 15 state insurance regulators. Hampton’s video interview can be viewed in its entirety at www.insurancejournal.com/broadcasts.

In the interview, Hampton also answers questions on captives, credit scoring and federal regulation.

Hampton reported that the District’s campaign to attract captive insurers has enjoyed a “growth spurt” to 70 entities since it switched from targeting association-backed captives to hospital and liability risks. It now is going after medium sized firms with $50 million to $100 million in capitalization.

The District allows the use of credit scoring by insurers in developing rate classifications and Hampton agrees with that policy. “If you take out credit scoring, there will be less rating classes and more people would be paying higher rates,” he maintained.

However, he said he would be conducting a market analysis to verify that this practice is not unfairly discriminatory, as insurers claim. “The one thing that we are concerned about and we are going to be working on as one of our agenda items in ’07 is to make sure that this credit scoring is not unfairly discriminatory to certain groups of folk,” he told Insurance Journal.

In the interview, Hampton explains why he believes federal regulation of banking and securities works fairly well but applying that model to insurance would be a real challenge given the “parochial” nature of state insurance laws.

“You can’t have ‘one rate or policy form fits all’ in insurance,” said Hampton. “But you can have that process in banking and securities.
“I think if we do have a national system, this national system will still have to incorporate a lot of the parochial laws and different customs in the states and jurisdictions that are operating in the United States now.”

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