Producer Groups and Carriers Promote Cat Plan

National Underwriter--July 15, 2008

NU Online News Service

Two major agent broker trade groups and two leading property-casualty insurance carriers have banded together to ask Congress to promote a plan to spread coastal risk across state boarders.

In statements released today, the Council of Insurance Agents & Brokers, the Independent Insurance Agents & Brokers of America, and insurers The Travelers Companies and Nationwide Insurance Companies, urged Congress to enact a plan to address availability and affordability insurance crisis for coastal wind coverage.

They said the plan would spread the risk among all affected coastal property owners from Texas to Maine.

The plan was presented today to the chairmen and ranking members of the Senate Banking Committee and the House Financial Services Committee.

Noting that more than half of all Americans live within 50 miles of the nation’s coasts and the collective value of coastal properties from Texas to Maine is nearly $7 trillion, the group argued that preserving the status quo, where a vast number of those living on or near the Gulf and Atlantic Coasts do not have access to affordable property insurance, is unacceptable.

The “Four Pillars” approach to windstorm coverage for named events would:

• Implement a uniform set of rules for insurers that would apply to coastal zones from Texas to Maine in the event of a named wind storm, allowing insurers to spread the cost of risk among as many people as possible who are subject to the same risk.

• Require insurance companies to set risk-based and actuarially sound rates using approved standards and certified windstorm risk models, effectively making the rate-setting process transparent.

• Establish a cost-based federal reinsurance program for insurers for extreme events including multiple losses from one or more major events in a single season.  The reinsurance would be available at cost, without federal subsidy, and carry a requirement that insurers would pass any savings directly on to their customers.

• Implement a detailed mitigation program to encourage strong building codes, incentives for state and local adoption and enforcement of those codes, enhanced construction technology and land use planning requirements.

“Hurricanes don’t respect state borders, and putting in place a set of uniform rules for insurers that would apply to the entire coastal zone from Texas to Maine just makes common sense,” said CIAB President Ken A. Crerar in a statement.

“Under this proposal,” he said, “those subject to the same risk can share in the cost of their protection, but those who do not face the same risk will not – and should not – be charged.”

Travelers Chairman and Chief Executive Officer Jay Fishman said the insurer is committed “to finding a private market solution to the nation’s coastal insurance challenges.”

“The comprehensive concept we are offering today reflects input and ideas from across the industry, and is based on four pillars that, taken together, focus on facilitating the availability and affordability of private insurance for hurricane and tropical storm wind coverage along the Gulf and Atlantic coasts. At Travelers, we stand ready to work with Congress to advance the approach we are announcing today,” said Mr. Fishman.

Jerry Jurgensen, Nationwide CEO said, “Property owners who live in hurricane-prone areas deserve the same peace-of-mind and availability of insurance coverage as everyone else.”

Nationwide, said Mr. Jurgensen, “supports the four pillars being unveiled today as a consistent, reasonable approach to managing coastal-risk. These principles, if implemented, provide a sound framework that would encourage private insurance companies to broaden availability of property wind insurance coverage for consumers who live near the water.”

Late yesterday a spokeswoman said in an e-mail that the IIABA supports the principals, but no specific proposals.