News - Insurance

Friday, Sep. 11, 2009

Coastal insurance DEBATE

Proposals in the air

BILOXI — Gov. Haley Barbour joined the coastal insurance debate Friday, telling an audience he believes regional compacts would be the best way to regulate wind coverage in coastal zones from Texas to Maine.

Barbour introduced The Travelers Insurance Cos. president, Brian MacLean, to explain the company’s proposal for improving the coast insurance market. Insurers have pulled back from coastlines in recent years, leaving state-run wind pools to fill the void.

Wind pools were intended as insurers of last resort, but their market shares have grown to levels that experts agree are unsustainable. Insurance works by spreading risk, not concentrating it.

The Travelers plan was one of several proposals discussed on the second day of the forum sponsored by the Mississippi Insurance Department. It drew hundreds of participants from Mississippi and other states, including representatives of the insurance industry, construction trades, banking, government and real estate.

Under the Travelers plan, Mississippi would be in a zone with Texas, Louisiana and Alabama. Travelers had proposed federal regulation, but Barbour is encouraging the company to consider regional oversight. MacLean said the company is open to suggestions from all stakeholders, including consumers.

Federal coverage for mega-disasters is key to the plan. Insurance companies would buy that coverage at cost, which would help keep down rates. Two state insurance commissioners were skeptical.

“There would be nobody there to protect consumers except the lobbyists for the insurance companies,” Louisiana Insurance Commissioner James Donelon said. “That’s how federal regulation works.”

He and others pointed to the financial collapse of AIG Inc. under federal regulation. AIG insurance companies under state regulation remained solvent.

South Carolina Insurance Commissioner Scott Richardson said, “I think their end game is to take that risk and put it on the federal government’s back and off insurance companies.”

U.S. Rep. Gene Taylor spoke earlier in the day about his plan to include wind coverage in the National Flood Insurance Program. “We would spread the risk around the country, which is the point of insurance,” Taylor said. Rates, he said, would be set high enough to cover losses. Richardson countered that a sound rate would be much higher than most people could afford.

Taylor sees combining wind and flood insurance as the only way to resolve the conflict over who pays for hurricane damage when the cause is difficult or impossible to discern.

When he said private insurance companies stuck the NFIP with the bill for Katrina damage, one audience member booed. Another said, “That’s absurd.”

Richardson said it’s time to stop talking and act on solutions. One that’s been discussed for years would allow insurance companies to build tax-deferred reserves.

Donelon said Louisiana’s market is back to pre-Katrina levels as private insurance companies have started writing policies and taking customers out of that state’s wind pool. He said that was possible because the state mandated stronger construction standards, offered grants to insurance companies that wrote new business and abolished the unpopular Louisiana Rating Commission.