PCI Backs Forward-Looking Approach to Natural Catastrophe Risks

Seeks Comprehensive Solutions to Address Market, Infrastructure Issues

Washington -A forward-looking approach that encompasses all facets of disaster preparation, response, and recovery is the best way to craft future policy solutions for natural catastrophes, according to the Property Casualty Insurers Association of America (PCI).

Today, two Senate committees—the Committee on Banking, Housing and Urban Affairs, and the Committee on Commerce, Science and Transportation—met to examine the response of the insurance industry to the claims filed by homeowners and business owners in the wake of the calamitous 2005 hurricane season.

"Government, consumers and insurers must work together to put in place viable solutions to reduce losses from future catastrophes and speed relief to those who need it after the next natural disaster hits," says Ben McKay, PCI's senior vice president, federal government relations.

"The rebuilding efforts in the Gulf Coast vividly demonstrate the importance of insurance claims payments to both individuals and businesses, and the critical need for a healthy and stable insurance market to the region's long-term economic health," said McKay. "Playing the blame game doesn't do anything to improve enhance market conditions or spur recovery. Only by putting in place comprehensive solutions to address future natural disasters can we deliver a healthy and competitive insurance market in which consumers can choose a variety of coverage options from a variety of financially secure insurers—a result that consumers, insurers and regulators all want."

PCI believes there is a role, properly structured, for the federal government to play in assisting the financing of mega-catastrophe risk, and recommends a range of changes, including market reforms, stronger loss reduction and prevention, and new approaches to financing these risks. PCI has put forward a comprehensive reform agenda, including several policy options for lawmakers at the local, state and federal levels:

• Controlling and reducing catastrophe exposure through updated building codes, establishment of federal incentives for greater investment in loss reduction and prevention, responsible development restriction in catastrophe-prone areas, and greater steps toward preparedness
  
• Completing reforms to the National Flood Insurance Program (NFIP)
  
• Expanding private sector capacity by giving insurance markets greater freedom to respond to exposure risks
  
• Establishing voluntary, tax-deferred catastrophe reserves such as H.R. 164, introduced by U.S. Rep. Bobby Jindal (R-La.)
  
• Taking steps toward removing regulatory, legal, accounting or tax barriers to further growth in the catastrophe bond market
  
• Establishing a high-level federal liquidity backstop for catastrophic losses

While tens of billions of insurance claims payments have fueled much of the economic recovery along the Gulf Coast, reconstruction has been impeded by a number of financial, policy and infrastructure barriers, particularly in Louisiana. Public service availability in New Orleans remains limited, and declined tourism has deprived the city and the entire region of a crucial segment of the local economy. Furthermore, large numbers of residents who did not have flood insurance have been unable to rebuild, while many more who did receive settlements have chosen to relocate permanently. Also, uncertainty about long-term economic conditions and job prospects and the fact that flood-plain maps were released only in April 2006 have likely contributed to reconstruction delays.

Additionally, Louisiana faces a serious shortage of skilled labor, particularly in construction. There are approximately 13,000 fewer construction workers in Louisiana than there were before Hurricane Katrina hit.

"There are clearly a number of factors contributing to the fact that the area has not recovered as quickly as any of us would wish," McKay says. "The problems that exist today are essentially infrastructure issues. We are ready to work together in a positive way, with federal, state and local governments, to address these structural issues in the future through mitigation, loss-prevention measures and responsible development."

SOURCE: PCI