NCOIL Panel Addresses Lessons Learned from Disasters

November 22, 2005

Is the insurance industry able to handle another 9/11 or Hurricane Katrina in the very near future?

That was one area of discussion debated last Saturday among several panelists at the National Conference of Insurance Legislators (NCOIL) Annual Meeting – General Session in San Diego.

According to Dr. Robert Litan, vice president of Research and Policy for the Kauffman Foundation, “Mega-catastrophes are big and they are not going away.” Litan said that the current system to respond to such events is “flawed and needs to be fixed.” Whether it is a terrorist attack or major natural disaster, in most cases, private insurers do not know when the big one will strike. One example noted was if a major earthquake hit California. As Litan indicated, that not knowing presents a timing-risk problem.

Litan told the audience that information shows only 13 percent of California residents have earthquake insurance. “People do not buy the insurance because of the high deductible,” he pointed out. Another issue is presenting a more intrusive system of checks and balances for new construction of homes and businesses. David Maurstad, the acting director, Mitigation Division and Federal Insurance administrator for FEMA, said that mandatory enforcements set a real challenge in place.

In wake of Katrina’s recent destruction, Clarissa Preston, director of Rating and Policy Forms Division for the Louisiana Department of Insurance, told the crowd that making residents and business owners aware of their options when it comes to insurance is key.

“Many consumers did not know that flood insurance was available to them,” Preston remarked. “We’re (LDI) doing a lot of educating in the FEMA disaster recovery centers.” But the questions begs, is it too little, too late? Or, are people creating their own potential problems with where they build?

Frank Nutter, president of the Reinsurance Association of America (RAA), said that ‘We design our own disasters by poor land use planning.”

Alex Soto, president of Insource Inc. and president-elect of the Independent Insurance Agents and Brokers of America (IIABA), added, “We allow people to rebuild in irresponsible areas. We need to get a collective backbone and look at code inspection systems and put that information out there.”

As Edward Collins, counsel for Allstate Insurance Cos., noted, “We learned a lot from Katrina, but we need more prepared discipline and disciplined enforcement.”

The panel also looked at what changes Congress could make to the National Flood Insurance Program (NFIP) and the lessons from the TRIA.

Editor’s note: For more information on this panel discussion and a wrap up of the NCOIL Conference in San Diego, see the Dec. 5 issue of Insurance Journal.

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