Insurers advise Congress private markets should handle most disasters

But mega-cats need a public-private partnership, first responders and industry agree

The best way for the federal government to help property owners recover from a natural disaster is to let private insurers do what they know, except in the case of a megadisaster, when federal aid would be needed. That was what insurer representatives told the House Financial Services Subcommittee on Housing and Community Opportunity, which held a hearing on whether the country needs a national disaster plan.

According to Chuck Chamness, president and chief executive officer of the National Association of Mutual Insurers, for the vast majority of natural disasters, government need not be involved. “We believe the private insurance, reinsurance, and capital markets can serve as the predominant source of risk management for natural disasters — unless it’s a mega disaster.”

For mega catastrophes, a coalition of first responders, emergency management experts, businesses agreed with insurers that a comprehensive public-private, federal-state partnership is needed to protect against a massive hurricane or earthquake.

“Catastrophe protection and preparation is a nationwide priority that must be addressed immediately, before the next catastrophe strikes,” according to Robert W. Porter, executive director of ProtectingAmerica.org.

However a catastrophe comparable to the 1906 San Francisco earthquake could potentially exceed private market capacity, Chamness said. “To prepare for a disaster of this magnitude, it is appropriate for policymakers to consider whether government programs should be created to supplement the supply of private-sector capacity,” Chamness testified.

American Insurance Association President Marc Racicot urged Congress to take a holistic approach to addressing the problems posed by natural catastrophes.

“The reality is that there are no quick fixes or easy answers to the very difficult challenges we face,” Racicot said.

“Large natural catastrophes are a national economic problem, not simply a local insurance problem,” said Florida Insurance Commissioner Kevin McCarty, who also chairs the National Association of Insurance Commissioner’s Catastrophe Insurance Working Group. “Congress and the states need to work together to develop a comprehensive plan today to better manage and mitigate the natural catastrophic events of tomorrow.”

AIA’s Racicot outlined specific measures that Congress and state legislatures can take to increase preparedness for and expedite recovery from devastating natural disasters. The proposals include measures to protect people and property in harm’s way; regulatory and legal reforms to improve the stability of the insurance market; tax incentives for individuals to take a greater role in disaster preparation and response; and National Flood Insurance Program reforms.

To the extent government gets involved for megadisasters, such programs would need to be carefully designed to avoid undermining the private insurance market and “distorting public perceptions of the risk associated with living and doing business in disaster-prone areas,” according to NAMIC.

“The question lawmakers ought to be asking is, ‘What mix of policies will maximize the private sector’s ability to provide property insurance in disaster-prone areas while minimizing the risk associated with living and doing business in these areas?'” asked Chamness.