Posted on 29 Jul 2008
Much has changed in the catastrophe insurance landscape since October 2005, when Hurricane Wilma became the last serious hurricane to make landfall on the U.S. mainland. Thousands of claims have been paid, thousands of others litigated. A few smaller companies lapsed into insolvency, while billions were raised for new offshore capitalizations.
Despite more than two years of relative calm on the Atlantic storm front before last week's Hurricane Dolly lashed a swath of South Texas for up to $1 billion, neither Congress nor the insurance industry appear any closer to consensus on catastrophe legislation than they were in the immediate aftermath of Hurricane Katrina. Plans for some form of federal cat fund ran out of gas after passing the House last year, and while both chambers intend to wrap up flood insurance negotiations soon, the National Flood Insurance Program itself remains billions in debt.
Dolly may not do the kind of damage the 2004 and 2005 storms did, but it has put helped put coastal catastrophe issues back on the radar, which could get the legislative gears humming again. Because you can't tell the players without a scorecard, here's a breakdown of some of the industry's biggest voices on the subject, and the roles they could play in the debate to come.
Allstate Corp.-- Together with fellow "big two" personal lines insurer State Farm, Allstate has dominated the debate in recent years with the resources it has poured into advocating for a national cat fund backstop, including its founding of ProtectingAmerica.org. Allstate's plan is the one that looks most like the House-passed Homeowners Defense Act. That bill, dormant for now, has split the presidential candidates, with Barack Obama in favor and John McCain opposed.
Travelers Cos.-- Travelers has emerged in the past year with a plan it hopes could rival Allstate's, by incorporating elements it hopes will prove attractive both to free-market partisans and consumer advocates. Their proposed "coastal wind zones" plan would give companies the freedom to set the prices they think are necessary, while also holding them accountable if their projections prove inaccurate. Most recently, Travelers has even signaled its willingness to include some form of federal reinsurance backstop as part of the plan, something they'd previously resisted.
Reinsurance Association of America-- National cat plan advocates most often paint the reinsurers as wearing the black hats, with Florida state Sen. Steve Geller even publicly blaming the RAA for killing the natural disaster resolution he was pushing through the National Conference of Insurance Legislators. But the reinsurers also have amassed a significant and bipartisan set of allies, with environmentalists, consumer groups and free-market think tanks all arguing that cheap coastal insurance both distorts markets and encourages unsound development.
Independent Insurance Agents & Brokers of America-- The Big I's support for a federal backstop goes back to the Lazio-McCollum bill of the mid-1990s. For much of this decade, they've had to pull that support back somewhat, not wanting to be caught in the crossfire among insurers their members represent. Considered the industry's strongest lobby, they are likely to support any plan that doesn't call for a federal regulator, but have wanted to see more consensus before picking up the ball to run with it.
Nationwide Mutual-- Nationwide recently entered something of an informal partnership with Travelers, but also has its own plan that differs markedly from the pack in that it would remake the flood insurance program into something like a reinsurer, allowing consumers the option of full wind and flood protection as part of a single, privately written homeowners policy. That's gotten the attention of Rep. Gene Taylor and other advocates of a true "multiperil" policy. Though likely too late to be incorporated into the current flood insurance bill, it's an idea that could be incorporated into a more comprehensive catastrophe package in the years to come.