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A proposal for a national disaster plan to backup private hurricane and flood insurance markets appears to be gaining momentum in Washington.
This week, Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, expressed his support for a national disaster program.
“It is clear that the government has got to step in,” said Frank during a press conference where he was flanked by Rep. Ginny Brown-Waite, R-Fla., and Rep. Carol Maloney, D-N.Y., who are advocating a federal role.
Citing the federal government’s role in providing a backstop for terrorism insurance, Frank said, “We believe that we have reached a similar point with regard to what happens with floods and hurricanes. … I believe that some federal backstop is necessary.”
U.S. Sen. Chris Dodd, D-Conn., chairman of the Senate Committee on Banking, Housing and Urban Affairs and a Democratic presidential candidate, is also interested. Dodd has said he will hold hearings on insurance issues on April 11 either in Washington or the New Orleans area.
“This is not a local issue. It’s a national one,” Dodd told The Associated Press. He noted that more than 60 percent of the country’s population lives within 100 miles of the coast. “What happened here could happen in my state. It could happen to an awful lot of people in this country.”
The idea of a national plan has garnered increasing attention as states from Texas to Connecticut report property owners are having difficulty obtaining affordable insurance. A number of states are also considering plans of their own.
The insurance industry tends to agree that policymakers must address this issue but is watching closely.
The Property Casualty Insurers Association of America (PCI) is hoping lawmakers will respect the role of private insurers and come up with state-specific remedies that provide releif where it is most needed.
“Insurers, regulators, and consumers all want the same thing: a healthy and competitive insurance market in which consumers can choose a variety of coverage options from a variety of financially secure insurers,” said June Holmes, PCI’s interim CEO. “PCI is a strong believer in the power of market systems and signals to solve most problems. At the same time, we believe there are some risks in some areas that market solutions alone may not have the tools to address. Mega-catastrophe hurricane and earthquake risks fall into this category. Mega-catastrophe risks, if not addressed, can undermine the economies in these critical areas of the country and insurers need to work with state and federal policymakers to develop innovative solutions that promote increased insurance availability and responsible economic development.”
Holmes said solutions should meet the unique needs in each state. She maintained that a one-size fits all approach is not likely to work given the diversity of coastal markets.
“Conditions in Florida are unique from any other state,” said Holmes. “Over 80 percent of the insured property in Florida is located along the Gulf and Atlantic Coasts and the total value of insured property there is nearly $2 trillion and growing. Florida is the most hurricane-prone state in the U.S., accounting for roughly half of the total U.S. annual aggregate storm losses. The solution to market disruptions in Louisiana, South Carolina, or Massachusetts will look much different from one crafted by Florida legislators. That’s why we favor a state-by-state approach backed up at a very high level by federal liquidity protection.”
At the same time, Holmes also cautioned against approaches that include negative aspects of recent Florida legislation that expand the role of the state government in providing coverage for non-catastrophe risks and drive away primary insurers when they are most needed.