NAIC Catastrophe Fund Proposal Latest In Series Of Plans To Address Disaster Financing

Chicago – The draft of a national catastrophic risk insurance program considered at a National Association of Insurance Commissioners (NAIC) hearing here today is the latest in a series of proposals that attempts to fundamentally reform the way the nation finances the economic losses from natural disasters. The proposal considered by regulators adds momentum to a growing debate among state and federal public policymakers, about how best to prepare for, respond to, and recover from catastrophes such as the hurricanes that devastated the Gulf Coast in 2005.

The Property Casualty Insurers Association of America (PCI) applauded regulators for addressing the issue, and offered its assistance in developing public policy solutions that both serve insurance consumers and preserve a healthy insurance market across the U.S. "We have had very little time to evaluate this latest proposal and would encourage further discussion with the industry, state and federal legislators prior to advocating a specific plan," said Ernie Csiszar, president and CEO of PCI. "However, we do believe that now is the appropriate time for a thorough debate on how we, as a nation, deal with the catastrophic risks that face individuals and business in all parts of the country."

Csiszar stated that economic and political issues further complicate the search for a solution. "On the economic side, insurers are faced with disasters that could jeopardize the financial stability of the entire industry and, as a result, destabilize the U.S. economy," he said. "On the political front, there has historically been very little support from legislators in less disaster-prone states for federal involvement in a federal disaster insurance program."

PCI supports initiatives that enhance the ability of markets to respond and provide incentives for states and communities to improve their systems and requirements for land use planning, building codes and other loss prevention and mitigation tools, said Csiszar.

PCI also supports provisions that would allow insurers to establish voluntary, tax-deferred pre-event catastrophe reserves for purposes of funding all or part of their exposure to catastrophe risks, and for utilizing catastrophe bonds to develop additional capital for such risks. The association opposes proposals that impose government mandated coverages, rates or discounts.

"Any catastrophic risk program – whether state or federal-based -- should promote personal responsibility, support reasonable building codes and land use requirements, maximize risk-bearing capacity of the private markets, and provide quantifiable risk management to the public and private participants in the program," said Csiszar. "PCI welcomes the opportunity to work with public policymakers to develop solutions that allow Americans to better manage the catastrophic risks each of us face."

SOURCE: PCI