Markham R. McKnight, is president of BancorpSouth Insurance Services Inc., which provides financial and insurance products to personal and commercial customers throughout the Southeast.
McKnight has an MBA degree from Louisiana State University and was named the LSU General College Alumnus of the Year in 1995. He is currently treasurer of the Council of Independent Agents and Brokers (CIAB), and is in line to become president of the national association in 2008. The CIAB represents leading commercial insurance agencies and brokerage firms.
McKnight, who has testified before Congress on issues related to insurance, recently addressed challenges to the insurance market on the Coast and other industry issues with the Mississippi Business Journal.
Mississippi Business Journal: Is the issue of insurance availability and cost getting in the way of the recovery of the Gulf Coast following Katrina?
Markham R. McKnight: It’s a major factor. In spite of the delays of federal reconstruction funds, the high cost and lack of availability of insurance have been major hurdles. There are a lot of different movements on several fronts that will give us a better picture in the near future. State legislatures (Florida, Mississippi and Louisiana) and Congress all have insurance agendas that will push the private markets to react.
MBJ: In your opinion, what needs to be done on the federal level to keep insurance available and affordable in hurricane-prone areas such as the Mississippi Gulf Coast and southern Louisiana?
McKnight: There are many proposals currently in Congress that have political viability while others are DOA, i.e., a federal backstop for state catastrophic pools. There are a handful of efforts that I believe will produce the best results.
More than $25 billion in new capital has emerged in the global reinsurance marketplace since Katrina. This new capital is slowly and increasingly becoming available as insurers refocus their portfolios to balance their risk profiles. Congress should not do anything (such as the Florida plan) that would jeopardize or undercut this development of new capital. Additionally, given the severity of the crisis confronting policyholders in costal regions, Congress should consider measures that would provide further incentives for the capital to be utilized to relieve the coastal crisis. Specifically, proposals should be introduced and considered which would provide perhaps a “limited-time offer” of income tax relief for insurers and re-insurers who apply their capital in the most vulnerable regions.
The National Flood Insurance Program (NFIP) is in need of significant reform. In addition to zone updates, I believe it is necessary for the flood policy to “follow form” of the property policy to relieve conflicts between private insurers and federal flood policies. However “all-perils policy” issued by the NFIP (as proposed by Reps. Gene Taylor, Bobby Jindal and others) in my opinion would crowd out the private marketplace. Such proposals will be politically unpopular with those in non-coastal areas. There are legitimate concerns that such a program would never be able to establish and enforce “actuarially sound” rates, thereby dramatically increasing the contingent liabilities of the federal government.
Passage of legislation to streamline the surplus lines marketplace would help insurers better compete and offer better, more efficient coverage to policyholders. The Nonadmitted and Reinsurance Reform Act would streamline this marketplace by assuring that the rules for placements are governed by the state in which the insurance is secured.
Mitigation of risk must be a part of the solution.
Stick-built homes in hurricane-prone regions are always going to be exceptionally difficult to insure, and there is an understandable reluctance on the part of taxpayers generally to subsidize them directly or indirectly. Building codes should be beefed up, and land-use policies should be strictly enforced.
MBJ: What needs to be done on the state level for Mississippi?
McKnight: The recent legislation for statewide assessment is a tremendous step forward. I believe that combined efforts of Mississippi legislators have been huge. Efforts to support the Wind Pool, push for NFIP reform and risk mitigation are the building blocks to encourage private insurers.
MBJ: What do you think about the recent action taken by the Florida Legislature that has alarmed many in the insurance industry?
McKnight: The recent legislation signed into law in Florida may accurately reflect a populist uprising against insurance rates, but it is already forcing private insurers to retreat from the Florida marketplace. By cutting rates, allowing its state-run insurer to compete against private companies and throwing the catastrophic risk of a major hurricane onto Florida taxpayers at some later date, Florida has jeopardized the state’s financial rating. This effort is reminiscent of the situation faced in the 1980s in the New Jersey automobile insurance marketplace. The state essentially took over the business, cut rates and drove out the private marketplace. While the strategy worked for a couple of years, New Jersey’s auto insurance marketplace has subsequently been universally regarded as the worst for consumers in the country.
An article in The Times Picayune said: “Insurers say Florida destroyed its insurance market by rolling back rate increases for the state’s insurer of last resort and increasing the obligations of the state-run catastrophe reinsurance pool without adequate financing, essentially putting the state in competition with the private market.
Insurers say the state’s credit rating is now in jeopardy and that the experiment will have dire consequences and ultimately will prove anti-consumer.”
MBJ: How do you compare that to the actions of Louisiana Gov. Kathleen Blanco in trying to encourage insurers to stay in the marketplace by touting better building codes, offshore oil revenues being used to restore coastal wetlands, repairs to the levees and other actions to make buildings in Louisiana more disaster proof?
McKnight: As long as that is the plan, I believe that encouragement of the private market is the best approach.
Contact MBJ contributing writer Becky Gillette at firstname.lastname@example.org.