Federal help sought for coastal insurance problem

Tuesday, September 25, 2007
By AMBER CRAIG
The Mississippi Press

MOBILE -- Insurance companies seemed to agree Monday that coastal insurance issues will need federal intervention, either by oversight or funding, before they are solved.

Insurance regulators testified before a panel of insurance commissioners from Mississippi, Louisiana, Alabama, Florida, South Carolina, Arkansas and the Virgin Islands at a public hearing held by the National Association for Insurance Commissioners to address issues of instability in the market after Hurricane Katrina.

Representatives from Allstate, State Farm and Travelers insurance companies and Lloyds, Guy Carpenter and RenaissanceRe reinsurance companies testified at the four-hour meeting held at the Battle House Renaissance Hotel in Mobile, Ala.

Insurers expressed concern about over-exposure to risk that has led companies to scale back coverage, raise rates and cancel or not renew policies since the storm two years ago.

Alabama Commissioner Walter Bell, president of the national association, said he noticed the companies' proposals all included a major role for the federal government to play.

"They all have a tremendous amount of federal involvement, and that's coming from three large insurance companies," Bell said.

After the three insurance companies testified, Mississippi Insurance Commissioner George Dale said that although he has never been in favor of any federal involvement, there might be room for it to become involved in a limited way.

David Hill, vice president and regional general counsel for State Farm, proposed an adoption of statewide building codes, more accountability from homeowners who live in high risk areas and a modernization of the federal flood program that would prevent people from unknowingly being underinsured.

"For those who had flood insurance, many found that the amount of coverage was not sufficient to cover their losses," Hill said.

Hill also said vulnerable states should start catastrophe funds and federal backstop funds could provide "pre-emptive" funding.

The primary component of a proposal from Travelers is the creation of a Coastal Hurricane Zone, covering the lower two counties or parishes from Eastern Texas to Maine. Those areas that "share the same kind of risk" could have similar insurance rates, adjusted based on actual long-term wind exposure, said John Milette with Travelers.

Milette said the company realized that this kind of plan would be difficult for some people, but said help could be offered through subsidies and tax credits funded by a tax surcharge.

"We do recognize that for some folks it'll be tough," Milette said. "It'll be tough to make that transition."

Milette said his company would not to see the federal government regulate and oversee wind overwriting by private insurers.

Edward T. Collins, managing counsel for Allstate, testified representing Protecting America, a coalition of companies promoting more state and federal backstop funds for catastrophes and stronger mitigation and prevention programs. Allstate is a coalition member.

Collins said the private sector can deliver quickly, but has insufficient capacity to deal with another Katrina-sized catastrophe, especially because more people are moving to high-risk areas. There is a growing gap between the amount of risk and the amount of protection available, Collins said.

"The risk is rising and the level of protection is declining," Collins said.

Insurance commissioners, however, agreed overall that the private sector can do the job more effectively than the federal government alone.

"I don't believe that government will ever be able to do this as well as private entities," said Scott Richardson, insurance director for South Carolina.

One plan mentioned several times during the meeting relies heavily on the federal government. H.R. 3121, the Flood Insurance Reform and Modernization Act, which includes the text of Rep. Gene Taylor's Multiple Peril Insurance Act, is expected to be considered by the full House some time this week.

Alabama Rep. Jo Bonner, a co-sponsor of that bill, told the panel that when Taylor asked for his support, "I didn't hesitate to do so."

Reporter Amber Craig can be reached at acraig@themississippipress.com or (228) 934-1428.

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Mississippi Press published original article on September 25, 2007.

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