NY Cat Fund Debate

The availability and affordability of coastal property insurance is an issue that elicits a wide range of viewpoints. Insurers, legislators and regulators face growing challenges in managing this problem because of the escalating values at stake. Even in a hurricane season without a major U.S. landfalling storm, the numbers at play are of grave concern. Let’s revisit some of the figures: total value of insured coastal exposure nationwide is more than $7 trillion and growing; Florida and New York — with more than $1.9 trillion insured coastal property each — have the highest coastal exposure as a share of all insured exposure in their states; coastal populations continue to surge; natural disasters cost insurers $14.5 billion annually in the 20-year period from 1986-2005, and since 2000 the toll has increased to $20 billion annually, mostly due to hurricane damage. To-date many proposals have been put forward to deal with the coastal property insurance problem. The latest solution, unveiled late last week by New York insurance superintendent Eric Dinallo, would require insurers to create a catastrophe reserve fund to help pay claims from hurricanes and other natural disasters. Like many issues in our industry, there  are varied responses to this plan. National Underwriter’s October 9 online article by Daniel Hays “Insurers of Three Minds on N.Y. Cat Fund Proposal† sums up where we are right now. We welcome more feedback on this topic.  

One thought on “NY Cat Fund Debate”

  1. It is an interesting idea proposed by Superintendent Mr . Dinallo.

    Also, it is interesting how one could cobble together a road map (at the 50,000 foot level) for such an initiative . For example:
    1. Insurers doing business in the state would contribute to the Fund in proportion to their written “coastal” business (commercial and residential);
    2. Immediate NYS tax deduction for monies contributed to the Fund;
    3. The Fund would be (a) Managed by Trust and held in a conservative investment portfolio ensuring it’s availability in the event of a hurricane and (b) Any investment gains (i.e. interest or dividends) would be returned to the participating companies in proportion to their respective contributions;
    4.The insurers would manage claims as they would normally;
    5. Pay the policyholders (subject to the terms and conditions of the policy); and
    6. Be reimbursed by the fund.

    I realize that this would be a significant undertaking not the least of which would be the development of a sophisticated project plan, marshalling the necessary resources (e.g. intellectual, financial and political capital) and actual implementation.

    Ultimately hurricane activity will largely dictate the level of interest as well as whether or not this will go any further than Superintendent Dinallo’s draft proposal presented October 9th at the Suffolk County Community College.

    Thank you for making available a copy of the proposal.

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