State insurance chiefs urge U.S. disaster fund
By David Lawder
WASHINGTON (Reuters) – Gulf coast state insurance
commissioners urged lawmakers on Wednesday to create a national
catastrophe insurance fund, saying it was needed to backstop
insurers against future devastating losses and preserve
Without such a fund to help them absorb losses from future
disasters, insurers will cut back risk coverage to mitigate
risks, the regulators from the hurricane-prone states of
Florida, Louisiana, Mississippi, Alabama and Texas told the
House Financial Services subcommittee on insurance.
“There is not enough capital in the marketplace for a
mega-catastrophe and it could in fact bankrupt the insurance
industry in the United States,” Florida insurance commissioner
Kevin McCarty said.
A massive earthquake on the New Madrid fault in Missouri on
the scale of quakes in 1811 and 1812 could cause $120 billion
in damage today, he said.
Lawmakers in Congress are discussing whether to create such
a fund to keep insurers from withdrawing coverage from certain
areas and reduce the risk that taxpayers would be saddled with
billions of dollars in emergency spending after major disasters
like Hurricane Katrina.
The subcommittee chairman, Rep. Richard Baker, a Louisiana
Republican, said the massive scale of Katrina damage may have
created a “political and policy window” that would allow for
such a plan.
Next week, insurance commissioners from New York, Florida,
Illinois and California are expected to draft an industry
proposal for national catastrophe fund.
Florida estimates its damages from eight hurricanes in the
past two years at $32 billion to $36 billion. Hurricanes
Katrina and Rita left some $40 billion in destruction across
five Gulf Coast states.
But Rep. Paul Kanjorski, a Pennsylvania Democrat, voiced
concerns that a national catastrophe fund would subsidize
reckless rebuilding and development on high-risk coastlines by
lowering insurance rates.
“Don’t come forward with a recommendation where you’re
asking somebody in Pennsylvania to subsidize low insurance
rates so people can have their bay side homes that are going to
get wiped out every eight or 10 years,” Kanjorski told the
“You’re not going to get sympathy from fellows like me,
simply because it’s counterintuitive.”
McCarty said residents in Florida would have to contribute
more heavily to any federal catastrophe fund because they live
in a higher-risk area, and it would have to have controls to
discourage “irresponsible building” in high-risk areas.
Florida created a statewide fund to draw insurers back into
the market after Hurricane Andrew 13 years ago.
Walter Bell, Alabama insurance commissioner, said that he
anticipates that insurers will pay 30-50 percent more for
reinsurance next year. Some companies may find themselves
unable to renew their reinsurance policies and will have to cut
their exposures, he said.