Study: Homeowners Could Save $11.6 Billion with Catastrophe Protections

May 24, 2007

American homeowners could save $11.6 billion annually if private funded catastrophe programs were enacted in disaster-prone states and backed by a similar national program, according to Milliman Inc., an actuarial and consulting company based in Washington.

According to the report, if a national backstop mechanism is enacted and state cat funds are created in certain states, homeowners’ insurance premiums would be reduced. State savings would vary according to factors such as the likelihood of a natural catastrophe, population density and the value of residential property, the report indicated. For example, annual savings per household in California would average $256 while it would be $224 in Louisiana, $132 in North Carolina and $127 in Oregon, the report indicated.

“An integrated program that includes a state catastrophe fund and a national backstop in addition to the traditional insurance market, while helping to fund mitigation efforts, enhance first responder programs and expand homeowner education, would save American homeowners,” according to Dr. David Appel, principal and director of economics consulting for Milliman. “Our actuarial analysis confirms and validates the notion that such an integrated program which transfers some of the cost of private reinsurance into tax exempt catastrophe funds would produce significant annual savings.”

James Lee Witt, former Federal Emergency Management Agency director and co-chair of, said “current financial recovery mechanisms, which rely heavily on the private insurance market, federal assistance in the form of low-interest loans, and a handful of state catastrophe funds, are incapable of meeting the needs of victims and the immeasurable costs that follow a catastrophe.”

The Milliman study noted that with a coordinated cat system, residents in risk-free states would not need to pay into the catastrophe fund, which would reduce the current cross-subsidy that occurs when the federal government steps in to help recovery after a catastrophe.

To view the entire study, visit


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