Catastrophe Insurance (C) Working Group
Catastrophe Insurance (C) Working Group Page
Joint Executive (EX) / Plenary Committee Summary Report
Summer 2009 Meeting Summaries Index

The Catastrophe Insurance (C) Working Group of the Property and Casualty Insurance (C) Committee met June 14, 2009.

During this meeting, the Working Group:

• Discussed the federal Catastrophe Obligation Guarantee Act (S. 886 of 2009). 
• Introduced April 23, the bill calls for the establishment of a program to provide federal guarantees, to be handled by the secretary of the U.S. Treasury Department, for debt issued by eligible state catastrophe-insurance programs to assist in the financial recovery from natural catastrophes.
• The bill notes that “while state catastrophe insurance programs may be well-designed and adequate to cover insured losses from most natural disasters, a small but significant number of catastrophic events are likely to exceed the combined financial capacity of such state programs and the local insurance markets.”
• Covered perils include earthquakes, perils ensuing from earthquakes (including fires and tsunamis), tropical cyclones having maximum sustained winds of at least 74 miles per hour (including hurricanes and typhoons), tornadoes, volcanic eruptions, catastrophic winter storms, hail, and any other natural catastrophe (not including any flood) insured or reinsured under the state program. The bill specifies that the total principal amount of debt obligations guaranteed shall not exceed $5 billion for eligible state programs that cover earthquake peril and $20 billion for eligible state programs that cover all other perils.
  
  Discussion on the bill centered on indentifying:

• Economically efficient ways to fund post-event catastrophe losses.
• Effective ways of encouraging private and state funding of catastrophe losses.
• Appropriate ways to spread catastrophe risk.

• Discussed possibilities of insurers using “all risk” policies. Comments centered on the pricing, risk spreading, and structure of these types of policies.

• Received a presentation, “Smart Rainy Day Planning: Key Considerations in Coordinating and Maximizing Insurance Funding for CAT Loss Recovery,” by Amy Bach (United Policyholders) and Colleen Repetto (Fair Insurance Rates in Monroe—FIRM). The presentation:
• Suggested the use of “all risk” policies to reduce the complications that arise in having to separate wind and water perils.
• Suggested that if, in fact, a majority of the states suffer from natural catastrophic events, then high-risk areas should have four levels of “all risk” insurance coverage. Level 1 would call for the policyholder to pay the premium and deductible; Level 2 would call for the policy to pay claims to cap the loss; Level 3 would call for the state catastrophe fund to pay claims between the private insurance losses and cap loss; Level 4 would call for a federal catastrophe insurance plan to provide a catastrophic financial obligation guarantee to the state for amounts over the state’s cap loss limit.
• Reviewed the federal Homeowner’s Defense Act of 2009 (HR 2555), which calls for a national catastrophe fund.
• Called for building and mitigation education, including the use of low-interest loans, grants and premium credits for consumers.
• Suggested that the  states’ sales tax on purchases, which provides a “windfall” tax-revenue stream to the state, be used to build reserves in state catastrophe funds and/or to fund mitigation programs.
• Reviewed the federal Catastrophe Obligation Guarantee Act (COGA) and discussed why it merits the support of public officials. If enacted, COGA would provide private property insurance in states where catastrophic natural disaster risks are fast becoming scarce and unaffordable.