By David M. Eppstein
Director of State Affairs
PIA National

President John F. Kennedy once said that “the time to repair your roof is when the sun is shining.” His advice is appropriate today in the ongoing discussions of a national natural catastrophe plan.  We are all thankful that no hurricanes hit the United States in 2006, a welcome break from the series of disasters suffered through the previous two years. So following President Kennedy’s sound logic, this period of calm is the perfect time to formulate and implement a plan for preparing for, responding to and recovering from the next catastrophe.

Despite Disaster Respite, Nat-Cat Discussions Continue

Thinking about how to respond only after the devastation strikes wastes valuable time and as everyone knows, time is money.  In the wake of a disaster, however, time wasted can also mean lives lost. Unfortunately, all too often, our government leaders respond only in times of crisis and fall into a false sense of security once the danger passes.  It is up to us, therefore, to keep their attention focused on preparing for the next natural disaster that will inevitably occur.  All we can hope for is that we will have an effective plan in place for dealing with it.

PIA applauds the NAIC and NCOIL for continuing their efforts to plan for the next disaster, even as the memory of the rough seasons of 2004-2005 begins to fade in the minds of many.

NAIC President’s Symposium on Natural Disasters

NAIC President and Alabama Insurance Commissioner Walter Bell recently hosted a symposium in Miami, Florida to foster discussion among all interested parties. Commissioner Bell opened the symposium by saying this issue will be a high priority for the NAIC this year.  He also said that insurance commissioners in the recently afflicted states have learned a great deal about handling natural catastrophes and are eager to share this knowledge with other regulators.

The program included expert panelists speaking on policy considerations for natural disasters including response, recovery and rebuilding, and the National Natural Catastrophe Plan.

PIA National was there to learn about the latest efforts in planning for the next event and discuss with other participants how we can work together to advocate a sound policy agenda to address this issue.  PIA National Assistant Vice President for Federal Affairs, Kellie Bray and Director of State Affairs David Eppstein attended the symposium and delivered their report to PIA’s Natural Catastrophe Task Force.

The Debate

Some of the insurance company representatives who attended the symposium said that excessive rate regulation is responsible for many carriers avoiding high-risk areas and therefore asked regulators to remove price controls to force property owners to have more responsibility for their risk. Eleanor Kitzman, Director of the South Carolina Department of Insurance said, however, that even though most economists and academics say risk based pricing makes sense in theory, it is not politically feasible, at least not at this time and certainly not all at once.

One policy strategy advocated by a few carriers participating in the “Protecting America” plan envisions insurers as the primary layer of protection followed by state catastrophe funds and finally a federal safety net as reinsurance for the state catastrophe funds. This plan does not call for an “all perils” approach. The insurance companies generally do not favor an all perils policy primarily because it would be difficult to price appropriately. NAIC’s plan, on the other hand, calls for an all perils approach, including flood, with the NFIP to be a reinsurer for flood claims.

NAIC/NCOIL Plan

Ray Spudek, from the Florida Office of Insurance Regulation, explained the NAIC’s latest draft of Natural Catastrophe Risk: Creating a Comprehensive National Plan. The NAIC and NCOIL are cooperating on the proposal, although some differences are beginning to emerge.  The plan maximizes the risk-bearing capacity of the private markets and provides quantifiable risk management to the federal government.  Similar to the industry proposal discussed above, the NAIC plan contemplates two layers of risk-bearing capacity before the federal government.
NCOIL supports mitigation initiatives and tax-deferred catastrophe reserves; however, they have strong reservations about requiring mandatory “all-perils insurance coverage” in which the NFIP would serve as a reinsurance mechanism.

Building Codes

Unfortunately, not enough municipalities actually enforce building codes. PIA’s Executive Vice President Leonard Brevik participated on a panel of experts at NCOIL’s spring meeting last year and stressed the need for strong building codes and enforcement.  NCOIL used the information they gained from the panelists to develop a strong model building code with enforcement provisions. PIA has advocated strong building codes and stringent enforcement for many years and we applaud NCOIL for their efforts.

Further Debate Needed

These discussions will continue. There are many issues to be considered on this extremely important topic. Both the NAIC and NCOIL have this issue on their agendas for their spring meetings. PIA will be involved as we work with NAIC, NCOIL, Congress and others to keep this issue in the forefront until we have a workable national plan.  It is important to remember too, that these discussions will be ongoing because even when we do have a solid national plan implemented, we expect that we will learn valuable information after each event, so we must constantly be willing and able to revise our policies as needed.

David M. Eppstein davidep@pianet.org is Director of State Affairs for PIA National.

This article originally appeared in the January 2007 PIA Connection.