A natural catastrophe commission bill scheduled for consideration today by the Senate Banking Committee would provide for an important examination of how best to mitigate disaster risks and deal with the after-effects of these events, according to the Property Casualty Insurers Association of America (PCI).
The bill establishing a commission to look at the various aspects of natural disasters and insurance includes evaluating whether there may be catastrophe exposures that are beyond the capability of the private market and individual state catastrophe funds to address. PCI believes that there is a need to encourage new capital to enter property insurance markets and facilitate innovative ways to cover difficult risks through enacting greater regulatory flexibility and lower regulatory costs. The commission's duties, as outlined in the bill, include looking at these issues as well as enactment and enforcement of tougher standards for building codes, property development and other loss prevention and mitigation requirements that are also vital when looking toward the future and evaluating this issue.
“PCI believes that developing and enacting effective public policy to address future natural catastrophes is one of the most significant issues facing the insurance industry,” said June Holmes, PCI’s interim CEO. “Experts agree that the nation faces the prospect of more frequent and severe natural disasters in the coming decade. Moreover, significant property development, population growth, and rapidly rising real estate prices in areas prone to natural disasters exacerbates the potential for increasingly larger human and economic losses as a result of such disasters, requiring stronger mitigation as well as greater financial resources to fund future recovery and repair efforts.”
PCI believes that it may be necessary for the federal government to offer liquidity protection to state catastrophe funds at the highest level consistent with the maintenance of stable markets and avoidance of widespread insurer insolvencies. It is also essential that any federal program include measures intended to promote freedom for markets to respond to these exposures, including meaningful limitations on the ability of participating states to control and/or suppress property insurance rates or to maintain other unnecessary restrictions. PCI is pleased to see that the bill includes an evaluation of federal and state regulatory issues as well.
Furthermore, PCI believes that insurers should also have the ability to establish voluntary, tax-deferred pre-event catastrophe reserves for purposes of funding all or part of their exposure to catastrophe risks. Policymakers should consider ways in which further development of the private catastrophe bond market can be encouraged by removing regulatory or accounting impediments to the use of such vehicles and by other steps which may foster development in this market and the commission is charged with looking at these issues.
“The commission bill, as currently drafted, includes a thorough examination of these issues that are very important to consumers, PCI and our property and casualty insurer members, and the nation, and we support legislation that will fairly evaluate these issues,” Holmes said.
PCI is composed of more than 1,000 member companies, representing the broadest cross-section of insurers of any national trade association. PCI members write over $194 billion in annual premium, 40.1 percent of the nation’s property/casualty insurance. Member companies write 51.3 percent of the U.S. automobile insurance market, 39 percent of the homeowners market, 32.1 percent of the commercial property and liability market, and 38.7 percent of the private workers compensation market.
