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Hearing designed to find disaster insurance solutions

BIf there is strength in numbers, then a public hearing September 24 in Mobile, Ala., with insurance commissioners from five states vulnerable to hurricanes could help shore up the market for insurance in these disaster prone areas.

The hearing being co-hosted by Alabama Insurance Commissioner Walter Bell and Florida Insurance Commissioner Kevin McCarty is designed to address the availability and cost of property insurance in high-hazard coastal areas of the Southeast.

“Availability and affordability are obviously very important topics to residents of the Southeast,” says McCarty. “So, I am pleased to be able to co-host this event with my colleague Commissioner Bell. We are looking forward to a productive and enthusiastic sharing of thoughts and ideas.”

Also participating are Mississippi Insurance Commissioner George Dale, South Carolina Insurance Commissioner Scott Richards and Louisiana Insurance Commissioner James J. Donelson. Commissioner Donelson says he expects excellent attendance from some of the largest insurance and reinsurance companies in the world. He also considers participation by members of the U.S. Congress to be critical.

“We have bills pending in Congress that would get the federal government involved in addressing our crisis, which I believe is the ultimate silver bullet for this spreading crisis that now reaches from Maine to Miami and around to Brownsville, Texas,” Donelson says. “I’m very optimistic that with all of those parties coming together and expressing their ideas on how this should be solved that we will come away with some positive indications that will lead to solutions.”

Asked to compare the problems facing individual states, Donelson says Louisiana’s crisis is not quite as bad as Mississippi’s, and Mississippi is not as badly impacted as Florida. But he says Louisiana’s insurance woes affect a bigger part of the state.

“You have six counties affected,” Donelson says. “Ours stretches from Texas to Mississippi below I-10 and I-12, and that represents the majority of our population and economy. Whereas in Mississippi and Alabama, the coastal counties are a minority, albeit a significant minority, of the state population and economy.”

Commissioner Dale originally proposed that the public hearing be held in Biloxi. But when he discussed the proposal with other Southeastern insurance commissioners, they said it was an issue that affects all of the coastal areas.

“So we decided rather than this being something just for the Mississippi Gulf Coast, that this would be a hearing jointly sponsored by several states,” Dale says. “The insurance issues that arose after Hurricane Katrina are not unique to Mississippi. Most of the coastal states affected by a major hurricane in recent years are all experiencing insurance crises in some form or another. This is a problem from Texas all the way up into Virginias. I want a dialogue, but I also want to see some ideas that may not have been on the table yet to increase the availability of insurance in coastal areas.”

A primary objective of the hearing is to hear what insurance companies and reinsurers have in mind for the hurricane prone areas.

“Insurance companies will have the opportunity in a limited amount of time to say what they want to say to the overall question: ‘What will it take to get you back into the marketplace in coastal areas?” Dale says. “I think there is a time for there to be a bigger dose of the truth and less dose of emotionalism so people will know what to expect to be able to get on with their lives.”

Dale says companies that provide reinsurance are calling the shots today in the American insurance industry. Reinsurance companies have basically told the American insurance agency to reduce exposure in disaster-prone areas plus the reinsurance companies are also charging companies more for reinsurance that covers the companies for losses above their reserves. Dale sees the best possible outcome to be reinsurers stating they would move back into the marketplaces provided businesses and homes are made safer.

“Another thing we would like to see come out of this is insurance companies say they are willing to reserve a bigger portion of their income to protect against future storms provided Congress gives them some tax breaks on these reserves that they accumulate,” Dale says. “Now by statute they are told how much reserves they can accumulate. If they accumulate more than that amount, the federal taxes are so negative that it makes it difficult for them to accumulate additional reserves, which would cause them to be better prepared for a disaster.”

Dale proposes copying what the state Wind Pool is doing, which is accumulating bigger reserves for the future.

“Larger sums could be held in reserve, which they can’t do now because the federal tax laws kill them,” Dale says.

Dale was hopeful the hearing would help dispel a lot of misinformation about the issue of insurance for coastal properties. For instance, some people believe that legislation being promoted by Rep. Gene Taylor (D-Miss.) that would add wind coverage to the federal flood program will completely correct all the ills of coastal insurance. But Dale said the bill specifically states that the program must be actuarially sound.

Dale says that won’t address the questions of rates. And while he supports the legislation, he doesn’t think it will be a cure all for the coastal insurance problems.

“If people think Gene Taylor’s bill is going to reduce the rates, I think that is incorrect even though I support the idea of adding wind to a flood policy,” he says.

Dale says the public should not be misled by complicated questions with simplistic answers.

“That doesn’t help anybody,” Dale says. “This is a complicated problem.”

Contact MBJ contributing writer Becky Gillette at bgillette@bellsouth.net.

About Becky Gillette

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