Insurers, consumers and government all play key roles in catastrophe preparation, mitigation and recovery, says Ernst Csiszar.
Insurers play a pivotal role in supporting housing markets by providing the products and services needed to protect homeowners, lenders, businesses, and communities against exposure to natural catastrophes. We think it makes sense for insurers to work with consumers, state legislatures and Congress to improve the US' ability to prepare for, respond to, and recover from natural disasters.
The US is unique among nations in that it is exposed to virtually all types of natural disasters – hurricanes, earthquakes, floods, tsunamis, and volcanic eruptions. This exposure is exacerbated by the dramatic increase in population growth and real estate prices in the most disaster-prone areas. This not only increases the economic cost of recovery, but also leaves a growing number of Americans with a large portion of their personal net worth exposed to catastrophic loss.
PCI supports an approach that includes market freedom, tougher building codes and land use regulations and reform of the National Flood Insurance Progam. It is also supporting the creation of state catastrophe funding facilities. Some states may require consideration of catastrophe funds because exposure to mega-catastrophes may exceed the financial capacity of private markets.
Additionally, some mega-catastrophe exposures may be beyond the capability of both the private market and state catastrophe funds. In those cases, a federal facility to offer high-level liquidity protection to state funds may be needed. Lawmakers should also examine carefully the possibility of allowing insurers to establish voluntary, tax-deferred, pre-event reserves to fund catastrophe risks, and to further the development of the private catastrophe bond market by removing regulatory or accounting impediments to the use of such vehicles.
The fact of the matter is that the government is already in the disaster recovery business. Our position attempts to clarify and formalise the role of private insurers and the government so that disaster victims can obtain relief, while at the same time ensuring a financially sound method of funding catastrophe losses without unfairly burdening insurance policyholders and taxpayers who are less prone to large scale natural disasters.