Ou good friend AM was kind enough to shoot us this hot off the press, press release from Gene’s office. Following the graphics is the original PR from Team Bermuda Reinsurance so our readers can decide for themselves who is telling the truth and who got a big fat donation. The people at the Sierra Club should not so easily sell their good names. If there was truth in labeling this shawdow organization would be called Bermuda Reinsurers united to price gouge American citizens. – sop
Congressman Gene Taylor
U.S.House of Representatives
Fourth District of Mississippi
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2269 Rayburn HOB
Washington, DC 20515
(202) 225-5772
Fax (202) 225-7074
For Immediate release Contact: Ana Maria Rosato
March 13, 2009 (202) 225-5772
Gene Taylor Response to Insurance Industry-Backed
Americans for Smart Natural Catastrophe Policy
Environmental Groups Appear to do Industry Bidding
Americans for Smart Natural Catastrophe Policy appears to be a front group funded by the Bermuda reinsurance industry and their investors and partners in the U.S. insurance industry. The lobbyists for the Sierra Club and American Rivers are selling out their members without giving them relevant information.
In the first place, the Taylor bill does increase mitigation and requires stronger building codes. If the insurance-backed coalition truly wanted the federal government to encourage local governments to require stronger building codes, then the most effective way to do so is to make strong codes a condition of a federal insurance program, which is exactly what we do. Sec. 2 (2) of Rep. Taylor’s Multiple Peril Insurance Act of 2009 specifically states the following.
Second, the idea that we are increasing federal liability for disaster costs is ridiculous. The federal government already pays for all the losses that are not covered by insurance, but without the advantage of collecting premiums to pay for those losses. As a result, the taxpayers—rather than insurance companies—footed bill. The extent to which insurance companies committed fraud against the taxpayers has yet to be determined. My website details evidence that suggest the insurance companies defrauded the federal government’s flood insurance program. [See Evidence of Fraud by Insurers Handling Katrina Losses With Both Wind and Flood Damage.]
After Hurricane Katrina, federal taxpayers overpaid on NFIP claims because insurers blamed some wind damage on flooding, overpaid on NFIP administrative and adjusting subsidies to insurance companies, and then ended up paying billions more to provide FEMA trailers, housing vouchers, homeowner grants, subsidized loans, casualty loss tax deductions, and other disaster assistance to help homeowners, businesses, and communities recover.
The Taylor bill would offer the option to purchase risk-based, actuarially-sound premiums for wind coverage to NFIP policyholders. Wind risk is much easier to determine than is flood risk. The state risk pools, insurance departments, risk modelers, and other industry sources already compile all the risk and loss data needed to establish a premium structure that would ensure that the program pays for itself.
The federal program would be more efficient than the state risk pools that are forced to insure more and more coastal property. The Wharton Risk Management Center disclosed a well-kept industry secret. “…the prices charged for catastrophe insurance must be sufficiently high not only to cover the expected claims costs and other expenses, but also the costs of allocating capital to underwrite this risk. For truly extreme risks, the resulting premium can be as much as 5 to 10 times higher than the expected loss.”
The single state pools concentrate too much exposure in a small geographic area. They are not able to build up adequate reserves, so they are forced to go to Bermuda and elsewhere to overpay for reinsurance coverage. That is why the reinsurance industry is bankrolling this opposition to the Taylor bill.
The wind insurance option would be much easier to implement in an actuarially-sound manner than the existing flood program, because the three biggest problems in the flood program do not apply to wind insurance.
The flood insurance program has a deficit for three main reasons:
(1) Levees break or fail and the catastrophic flooding that ensues is much greater than predicted by the maps and premiums that assumed the levees would hold;
(2) Extreme storm surge events are very difficult to predict and a 200 or 300 year surge can cause much more damage than that predicted by flood maps and premiums that are based on a 100 year event; and
(3) NFIP has done a very poor job of oversight of the insurance companies that contract to sell and service flood policies, allowing some of those companies to shift some of their wind claims to NFIP and also allowing the companies to collect windfalls in administrative and adjustment subsidies.
None of these three problems would be present in the wind insurance option.
- Windstorm risk would apply equally to the entire coastal area, without being affected by levees, dams, or flood plain assumptions that make flood risk so uncertain;
- Data and estimates of the probability and severity of hurricane winds are well documented so that requiring that structures be built to withstand high wind speeds and pricing premiums to those standards is much easier than predicting storm surge elevations or other extreme flooding events;
- The Taylor bill removes the conflict of interest that encourages insurance companies from shifting their costs to the federal taxpayers.
In some coastal areas, insurance premiums currently are 5 to 10 times higher than the amount of claims the insurance companies expect to pay. The government could set risk-based, actuarially-sound premiums to cover the expected claims without the huge additional cost of guaranteeing high rates of return to Bermuda reinsurance companies and their investors.
The insurance industry itself confesses quite candidly that the federal government could handle hurricane windstorm risk more efficiently than the current system.
Who says so?
“…the prices charged for catastrophe insurance must be sufficiently high not only to cover the expected claims costs and other expenses, but also the costs of allocating capital to underwrite this risk. For truly extreme risks, the resulting premium can be as much as 5 to 10 times higher than the expected loss.”
– Managing Large-Scale Risks in a New Era of Catastrophes, Wharton Risk Management Center, University of Pennsylvania, 2008, p. 141.
“Government is not subject to the private-sector factors that produce large swings in premiums around expected loss in private insurance markets. Thus, compared with the private sector, government should be able to set insurance prices closer to expected loss for hurricanes and other catastrophic risks, and keep those prices closer to expected loss over time.”
– Lloyd Dixon, James W. Macdonald, and Julie Zissimopoulos, Coastal Wind Insurance in the Gulf States, RAND Gulf States Policy Institute, 2007, p. 8
“The private insurance mechanism is not well-suited to low frequency, high severity events. …An important first step towards the right solution is acknowledging the federal government’s critical role in either providing such coverage directly or through a backstop to the privatemarket for high severity natural catastrophes that are otherwise beyond the ability of the private insurance market to handle.”
– Michael McCabe, Sr. VP of Allstate, letter to Hon. Maxine Waters and Hon. Judy Biggert, July 12, 2007.
The attached document includes graphs showing the huge increases in hurricane wind exposure in state-sponsored risk pools in the past four years. For more information, go to www.taylor.house.gov/insurancereform.
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Americans for Smart Natural Catastrophe Policy
For Immediate Release Contact: Ron Bonjean/Phil Singer
March 12, 2009 (202) 349-1402
www.smartnatcat.org
Sierra Club, American Rivers and Taxpayers for Common Sense Oppose Taylor Bill Adding Wind Coverage to the National Flood Insurance Program
(Washington, DC) – The Sierra Club, American Rivers and Taxpayers for Common Sense, all members of the Americans for Smart Natural Catastrophe Policy, today opposed legislation introduced this year by Representative Gene Taylor (D-Miss) which would add wind insurance coverage to the National Flood Insurance Program (NFIP).
According to these groups, the Taylor bill (H.R. 1264) would irresponsibly expose American taxpayers to added financial liability at a time when the nation is engulfed in an economic crisis. The better alternative is to increase mitigation and environmental protection initiatives that would prevent damage to homes and the environment.
“Instead of increasing the liabilities of a program that is almost $20 billion in debt, Congress should focus its attention on making communities more resilient to storms by investing in the protection and restoration of wetlands, floodplains, and barrier islands,” said Rebecca Wodder, President of American Rivers. “These cost-effective efforts will help limit flood damage to homes that are currently in harm’s way while also not encouraging needlessly risky development in the future.”
“Representative Taylor’s bill would create a perverse incentive to build in unsafe or environmentally fragile areas,” said Ed Hopkins, Director of Environmental Quality at the Sierra Club. “Improving local land use planning, strengthening building codes and making homes more resilient are better ways to protect communities from the risks of stronger hurricanes, storm surges and flooding.”
“The flood insurance program is awash in debt, but instead of fixing the program and working to protect taxpayers from future losses, the Taylor bill would double down, adding a whole new costly liability to the program,” said Steve Ellis, Vice President of Taxpayers for Common Sense. “In this tough budgetary time we cannot afford to put taxpayers more on the hook than they already are.”
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CARL POPE IS A JERK AND THE SIERRA CLUB IS FOR IDIOTS ALONE