Two New Coastal Insurance Proposals Floated

I considered slabbed a success when earlier this summer Nationwide unveiled a multi peril insurance proposal. Obviously we are bit players in this but the discussion here on slabbed coupled with the growing political movement to rein in what appears to be systemic insurer claimant abuse has stimulated discussion that hereto for has not taken place. The contrast of Summer 2008 with last year is telling. I remember the Sun Herald’s coverage of Rep Frank’s House finance committee hearings in 2007 when the industry, especially the reinsurance sector was on record firmly against Gene’s proposal but offered no solutions of their own. Now we see trial balloon solutions being floated seemingly weekly and for the slabbed is a sign for hope.

I’ve maintained a generally open mind about the proposals to date. But I found the first two stinkers IMHO this morning, one courtesy of the Sun Herald and one courtesy of Editilla at the NOLA News Ladder. That does not mean of course us slabbers don’t appreciate the input because we do greatly, I just don’t like the latest proposals. First off we’ll start off at the Hartford Courant which reported on a proposal by the Hartford Insurance Company for multi peril coverage:

With a personal rollout by CEO Ramani Ayer, The Hartford Financial Services Group Inc. is the latest voice in a deepening debate over how to solve insurance problems many people are facing in the post-Katrina era, from Maine to Florida and along the Gulf Coast.

The Hartford’s “Coastal Catastrophe Partnership” proposal says homeowners, insurers and federal, state and local governments must address the issues together. It suggests federal backing for monster storm claims and state subsidies to help some people afford insurance.

The plan aims to ensure insurers’ ability to make a profit so they’ll be ready and willing to take on shoreline risk.

The current system of state insurance regulation would continue under the proposal. But it would enlist the federal government in prodding states to allow rate increases that insurers claim reflect their true risk. Insurers say states such as Florida are artificially suppressing their rates.

So essentially the Hartford plan will guarantee insurers a profit, push the extra cost of rising premiums off on state taxpayers and put monster losses on the US taxpayers. This proposal sounds like a great deal for the insurance industry, not so good for the United States Treasury and those that pay into it via taxation.

As the story makes clear insurance is no longer an assumption of risk business, unless that is, the risk is transferred to the government.  The larger question is what changed since 1926 in Maine? Certainly the property and casualty insurers enjoyed the 82 Hurricane free years since the 1926 storm.

The insurance industry today is pulling back in a lot of these states and there is an affordability and availability crisis,” Ayer, The Hartford’s chairman and chief executive, said in an interview Wednesday. “My big worry is we’ve still not seen a big event.”

The 1926 category 4 hurricane that hit Miami, for instance, could cost an estimated $100 billion in claims today, The Hartford notes.

All those years since 1926 the industry was flying blind? Right….

Our own Roger Wicker has done one better than a proposal, he has filed a bill that will be co-sponsored by Thad Cochran, David Vitter and Mel Martinez that would give tax credits for Hurricane Mitigation and to help offset premium increases. Maria Recio filed this story for the Sun Herald:

Coastal residents of states hard-hit by hurricanes – including Mississippi, Florida, Louisiana, North Carolina and Texas – would benefit from proposed tax credits for high insurance premiums and storm mitigation improvements.

Sen. Roger Wicker, R-Miss., thwarted in an effort earlier this year to expand the federal flood insurance program, is taking a new tack on insurance relief for coastal residents in a bill he is introducing today.

“I think of this as a short-term focused solution to provide immediate assistance to people in coastal areas,” said Wicker in an exclusive interview with the Sun Herald and McClatchy Newspapers.

The bill would give residents affected by hurricanes in 2004, 2005 or 2006 a one-time tax credit up to $5,000 if their insurance premium increased 50 percent over a three-year period. It would also create a permanent tax credit of up to $5,000 per year for residents who make hurricane mitigation improvements to their homes.

The story continues:

Under Wicker’s plan, individuals would be eligible to receive a one-time tax credit up to $5,000 for an amount equal to 50 percent of the increase of their insurance premiums over three years. For example, if a resident paid $1,000 a year for homeowners’ insurance in 2005 and $5,000 in 2008, that person could claim a tax credit of 50 percent of the $4,000 increase.

Coastal residents along the Gulf of Mexico and Atlantic Ocean would also be eligible for a proposed permanent tax credit up to $5,000. Homeowners could claim 25 percent of the cost of hurricane mitigation improvements, such as elevating a structure or reinforcing it.

The bad news is a permanent solution is still elusive per Senator Wicker:

Wicker said in the interview that he felt he could not overcome the objections of Senate Banking, Housing and Urban Affairs Committee Chairman Chris Dodd, D-Conn., to expanding the federal program but that he had raised awareness of the need for insurance relief.

“It looks like a permanent type of solution will not be approved this year,” said Wicker. “I think the chances are better for this approach.”

First off I’m on record in complete agreement with the concept that the best solution is the long term one of mitigation and so anything that promotes hazard mitigation has my support out of the gate. I think the tax credits to help offset premium increases on the other hand is not good public policy, nor will it offer the type of relief our communities here in the heart of the GO Zone need.

Cash money not offering the “type of relief” needed? The problem is those who struggle the most with their wind premiums probably pay little to nothing in income taxes to begin with. And those on the upper end of the income spectrum probably will not be able to take advantage of credits due to the interplay with alternative minimum tax (AMT). To this storm jaded CPA this tax credit idea smacks of little more than political posturing in advance of the election. Of course the Senate could make the credits refundable and exempt from the limitations of AMT and call it a true subsidy because that’s what it represents.

On behalf of all of us here on the coast I express our thanks in advance for the handout, but considering today’s financial realities where the Senate is hunting budget cuts to fund Iowa Flood Relief (Editilla what would we do without you Bro), I shutter to think where our offset would come from.

How about some competition guys? The kind of competition where the insurance market is not artificially fragmented state by state; the kind where the ultimate subsidy of the anti trust exemption is eliminated; the kind of marketplace that me and my brethren in small business compete in each and everyday. If we had that kind of insurance marketplace we’re liable to find none of us would need government handouts to pay for wind insurance.

We’re behind you Senator Wicker 100%. We’re grateful for the start but we also know you can do better.


3 thoughts on “Two New Coastal Insurance Proposals Floated”

  1. As the story makes clear insurance is no longer an assumption of risk business, unless that is, the risk is transferred to the government.

    Gosh, Sop, wish I’d said that. It’s exactly what’s taking place – due to insurance and reinsurance investment and loss in sub-prime market.

    IMO what’s holding Gene’s proposal back is that it doesn’t have big enough payoff to cover current level of industry exposure.

    Way back when we were still the insurance forum blogspot, you made the point that we were not anti-insurance but advocates for a properly functioning insurance industry.

    That position hasn’t changed but I question whether that’s possible at this point given what we’ve learned since then – which brings us back to my comment about Gene’s proposal – he’s trying to protect property owners.

    Maybe what is needed is a “refresher course” for members of Congress who have forgotten the relationship between inadequate property tax base and the need for increased federal spending on any federal program that allocates federal funds with formula that includes Federal Poverty Level in its calculation.

    A vote against Gene’s legislation is a vote for increased federal spending on every one of those programs.

  2. Nowdy did ya know that there is already this arrangement there in Mississippi? As of last year the insurers in your state are able to pass on to their policyholders the cost of any assessments they have to pay into the windpool. Much the same as in Florida. It further reinforces the position the major insurers are stating that due to the size of the expsoure today it is leaving the realm of something private industry can handle on its own.

  3. I did but didn’t think of it, proximo. Thanks for the “refresher”. The industry’s earlier attempts at a solution on its own are one of the reason, ironically – the ACC a case in point. How do you stuff a fatter rabbit back in the hat?

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