Insurance Industry’s Response to Natural Disasters Hailed By Regulators
 |
Flood Insurance Reform and Credit Scoring High on Regulators 2008 Agenda
Contact: Loretta Worters (Insurance Information Institute)
212-346-5545
NEW YORK, January 11, 2008 — Insurance commissioners praised the private-sector insurance industry’s swift response to recent natural disasters at the 12th annual Property/Casualty Joint Industry Forum, held here.
“Though it is not well-known, we’re a boom state, economically,” said Louisiana Insurance Commissioner James Donelon, noting that the influx of billions in claims dollars paid following Hurricane Katrina in 2005 laid the groundwork for the state’s ongoing economic recovery.
Donelon added that most of the financial resources for all of the economic activity resulted from the payout in Louisiana of $24 billion in private-sector insurance claims. Another $16 billion was issued to Louisiana policyholders of the federal government’s National Flood Insurance Program (NFIP), a program overseen by the Federal Emergency Management Agency (FEMA). Donelon’s remarks were made at a regulators panel.
According to Donelon, the private-sector insurance industry’s ability to pay about one million auto, home and commercial claims in Louisiana within weeks of Hurricane Katrina making landfall, which resulted in the worst natural disaster in U.S. history, gave rise to Insure Louisiana, a state program that provides millions of dollars in grants to financially stable insurers who do not currently write coverage in Louisiana but have agreed to do so.
Joining Commissioner Donelon on the panel were Massachusetts Insurance Commissioner Nonnie Burnes, Kansas Insurance Commissioner Sandy Praeger, and South Carolina Insurance Director Scott Richardson. David Sampson, president and chief executive officer of the Property Casualty Insurers Association of America (PCI) served as the moderator.
“Ninety-eight percent of the claims were paid,” said South Carolina Insurance Director Richardson, referring to Hurricane Katrina. “The claims got paid, and we have sat for two years and listened to complaints about the minute amount of claims that didn’t get handled right, and we’ve just taken it on the chin, sort of quietly, and haven’t said anything about it.”
Citing the two natural disasters that hit Kansas last year, Praeger praised the insurance industry’s response to the first one, a severe tornado which hit Greensburg, Kansas in May 2007, and had some words of caution about the second one, in June 2007, because much of the damage occurred after heavy rains.
“I put out a press release two weeks after the tornado hit, saying that 80 percent of the people who had insured homes and businesses had heard from their insurance companies and had received some restitution within the first 7 to 10 days, and we were very pleased,” said Praeger. “The response was quick and efficient, and we had very few complaints.”
Praeger, who is also this year’s National Association of Insurance Commissioners’ (NAIC) president, said the June 2007 flooding in the southeastern portion of Kansas posed a different dilemma because most of the insured losses resulted from flooding, and few Kansas homeowners and businesses in the affected areas had NFIP policies.
“Many people don’t understand that their homeowners insurance policies don’t provide flood coverage, no matter how much we try to educate them to that fact,” she said.
Pointing to the U.S. House of Representatives’ vote last year to create NFIP policies that would cover policyholders for both flood and wind-related losses, Richardson, a former insurance agent and broker, said, “I’m just shocked that anyone would want to do anything with the federal flood insurance program without fixing it first,” pointing to the NFIP’s poor financial condition and complaints about the accuracy of its flood maps.
Praeger, who said she favors a move to an all-perils homeowner’s policy, also expressed skepticism about whether an NFIP policy that covered a policyholder for both flood and wind damage would resolve all post-disaster disputes.
“If you put wind into the flood insurance program, what about earthquakes? Was the house damaged by the earthquake, or did the fire occur first, because a fire is a frequent peril which accompanies an earthquake,” she said.
Meanwhile, Massachusetts’ Insurance Commissioner Nonnie Burnes, who became her state’s top insurance regulator in February 2007, has faced a different set of challenges.
“It has been all auto, all the time,” Burnes told the audience, talking about her successful efforts last year to encourage greater competition in Massachusetts’ highly-regulated auto insurance market. “For now, auto insurers in Massachusetts will benefit from less governmental bureaucracy but will not be able to use credit-based insurance scores to rate prospective auto policyholders.”
“I’m going to go back and revisit it [credit-based insurance scoring] because it is clearly correlated to risk,” she added.
With its large coastal exposure, the Massachusetts homeowner’s insurance market last year faced private-sector insurer withdrawals from certain markets through the issuance of non-renewal notices, according to Burnes, who stated that consumers nearest the water also realized higher premium prices when their policies were renewed.
“There’s a sense in Massachusetts that the [risk] models are not calibrated for Massachusetts or the entire Northeast, for that matter, and that’s something for us to know more about,” she said.
The Property/Casualty Insurance Joint Industry Forum was created to provide leaders from the widest spectrum of the P/C insurance and reinsurance industry with an opportunity to meet with each other in discussion of topics of general interest.
The sponsoring organizations of the Forum represent a broad base of insurance interests and audiences. They include: ACORD, American Institute for Chartered Property Casualty Underwriters, American Insurance Association, the Association of Bermuda Insurers and Reinsurers, The Geneva Association, Institute for Business & Home Safety, Insurance Information Institute, Insurance Institute for Highway Safety, International Insurance Society, Inc., ISO, National Association of Mutual Insurance Companies, National Council on Compensation Insurance, National Insurance Crime Bureau, Property Casualty Insurers Association of America and Reinsurance Association of America.
The I.I.I. is a nonprofit, communications organization supported by the insurance industry.
|
| |
| |
|
