Meeting Today’s Challenges and Preparing for Tomorrow’s

Weather forecasters predicted that the 2005 hurricane season could be more active than normal, but no one thought it would produce 26 named storms and the most destructive storm on record-Hurricane Katrina.

Katrina tested the mettle of the insurance industry and highlighted weaknesses in the nation’s emergency response system. She also demonstrated the value of our products and services to individuals, communities and America’s economy. We were-and are-there when people need us most.

Immediately following the storms, catastrophe teams moved into place and began to settle claims quickly and fairly. Adjusters, many whose own homes were damaged or destroyed, drove for hours, slogged through receding floodwaters and lived out of RVs to access the affected areas. Facing blocked roads, gas shortages and no electricity, insurance professionals relied on ingenuity, dedication and expert training to get the job done. The effort was both impressive and inspiring.

Yet there will always be those for whom the best is not enough or who see personal opportunities in others’ misfortune. We saw examples of that in the wind versus water lawsuits filed in Mississippi and Louisiana. While we will certainly fight these legal battles in courthouses from Biloxi to Baton Rouge, at the end of the day, our industry’s performance in the field that will win the day.

It is estimated that more than 1.8 million catastrophe claims will be filed for an expected insurance industry pay out of more than $40 billion dollars paid to policyholders. The Gulf region’s recovery is underway, thanks in large part to the insurance policies that protect individuals and businesses, and the dedicated professionals who made sure that claims get paid.

Yet several pressing public policy issues remain to be debated. At the forefront is the question of how we, as a nation, will finance losses from future mega-catastrophes. Economic and political issues complicate the search for a solution. On the economic side, insurers are faced with disasters that could jeopardize the financial stability of the entire industry and, as a result, destabilize the U.S. economy. On the political front, there has historically been very little support from legislators in less disaster-prone states for federal involvement in a national disaster insurance program.

Any catastrophic risk program-whether state or federal-based-should promote personal responsibility, support reasonable building codes and land use requirements, maximize risk-bearing capacity of the private markets, and provide quantifiable risk management to the public and private participants.

Another important issue involves the approach states take to regulating the industry. The insurance industry is a key component in the recovery of a community following a disaster. Our claims-paying ability jump-starts the economy. Banks are willing to make loans, businesses re-open, homes are repaired and jobs are created as a result of this infusion of needed cash. However, none of this can occur if lawmakers and regulators take a heavy-handed approach to regulating private insurers.

Over-regulation has a negative impact on the insurance marketplace. It stifles competition, limits consumer choice and drives-up the cost of coverage. This drives insurers out of the market and causes residual market program to become the preferred market, rather than the market of last resort.

Proposals that would impose moratoriums on changes to rates and coverage, or unduly limit an insurer’s ability to contract or expand their marketshare unwisely politicize the business decisions companies should be making based on economic realities. Litigation-no matter how meritless-can also have a negative influence on the marketplace.

There are proactive measures that we can take to mitigate the damage from next year’s hurricanes. Building codes are one of the most cost-effective ways to prevent damage, protect property values, and speed the recovery process after a disaster. While Louisiana passed a statewide building code, other states such as Florida, Mississippi and Alabama have work to do. And state lawmakers must ensure that local building inspection departments are adequately funded and staffed to enforce the stronger building codes.

The Property Casualty Insurers Association of America is encouraging Congress to provide short-term assistance to states that enact tougher building standards, so that those states can administer and enforce enhanced codes.

The 2005 hurricane season devastated a vitally important region. It caused the country to look closely at how major catastrophes should be managed and paid for, and how we can better protect ourselves, both as individuals and as communities, when the next disaster strikes. Our challenge as regulators, industry leaders and citizens is to work together to find solutions.

Greg LaCost is assistant vice president and regional
manager for the Property Casualty Insurers

Association of America.

Topics Catastrophe Legislation Hurricane Market