The Bush Administration has come out firmly opposed to calls by coastal state officials for a national catastrophe fund. In testimony before the Senate Banking Committee on April 11, Edward Lazear, chairman of the White House Council of Economic Advisers, said such a program would undermine the private market and ultimately cost taxpayers more.

Lazear said recently enacted Florida legislation aimed at reducing homeowners' rates by giving insurers access to cheaper, state-backed backup coverage will drive private insurers away, reducing competition. The plan charges artificially low rates, he said, meaning it will likely require a taxpayer bailout or large assessments on policyholders to cover the next big storm.

Florida Gov. Charlie Christ testified that rising insurance premiums after recent hurricanes are driving people from their homes. Lawmakers from other Gulf states, the Northeast, and elsewhere have also voiced support for such a national program, which would establish a backup for property insurance similar to a federal program set up for terrorism. Committee Chairman Chris Dodd (D-Conn.), stopped short of endorsing a national fund and said he would work to quickly create a national commission of insurance experts to develop consensus from a divided industry.

What It Means to Agents:  There are lessons for every state about how their state is managing their responsibilities under governmental disaster recovery programs which are already tied to federal standards and requirements, which are being reviewed as we speak.  Through the efforts of the PIA National Nat-CAT Working Group, PIA is moving its plan and policy into the marketplace by working with government and insurers to identify the actions that both sides must take in order to restore private insurance markets.  A critical job of government is to support private sector economic recovery.  PIA believes that this applies to the insurance marketplace as well.  Governments must avoid acting in a manner that pushes out private insurers or regulates the private sector insurance marketplace in a manner that makes it impossible for insurers to operate in a state.  Governments need to consider the long-term consequences on the market when taking actions to solve short-term problems.  Success will be a state-by-state and federal long-term effort in which PIA is and must continue to engage.

April 17, 2007