Commissioners, state officials are pressing for action on coastal property insurance -- could misdirected solutions produce unintended consequences? Obviously!
The National Association of Insurance Commissioners (NAIC) this week announced it will consider modeling for multi-state reinsurance funds focused on providing backstops for single perils, i.e. hurricanes or earthquakes. Normally, NAIC is not so vocal about its inner workings and somewhat preliminary conversations, but state insurance regulators need to look as though they are attacking the nation’s coastal insurance problem head-on so Congress and Mississippi Attorney General Jim Hood don’t swoop in and take over.
And while segments of the industry may feel that multi-state funds are not the way to go for some states, for a smaller geographic region like New England with similar demographics and risks, a regional fund might be the perfect solution. Connecticut, Massachusetts and Rhode Island face comparable exposure from hurricanes and each state’s property insurance market features many of the same players.
Discussion of multi-state funds should occupy policymakers for several months and hopefully keep them from mucking up the market with silly proposals like Hood’s demand for legislation to keep State Farm selling property policies in Mississippi. Overly stringent state laws have never set too well with private companies. Insurance is a product and the companies that produce it can choose where to deploy their capital. If we’re going to be mandating sales, I’d put in a demand for Caffeine Free Diet Dr Pepper to be available in all Massachusetts stores.
However, while it is appropriate for NAIC and the industry to be considering catastrophe funds, there seem to be too many cooks hovering over that particular pot and betting that whatever comes out will be the savory solution for coverage-hungry coastal dwellers. While CAT funds can definitely be a portion of the remedy, policymakers everywhere place too much emphasis on insurers’ responsibility to continue covering the coast. Legislators must examine the nuances of what makes their states less appealing to insurers – are building codes inadequate, is disaster response funding too skimpy? For states to rely on insurers and the federal government to bail them out – and to place all blame on others – amounts to abdication of responsibility.
As for insurers, there now exists the opportunity to be more creative with products and public communications. Instead of pulling away from states, the industry should offer its opinions and other options.