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NAMIC Board Adopts Statement of Principles on Natural Disasters

INDIANAPOLIS (June 26, 2006) – The National Association of Mutual Insurance Companies (NAMIC) announced today that its board of directors has adopted a statement of principles on natural disasters.

“This new public policy statement represents the culmination of a six-month effort by representatives from 20 NAMIC member companies, who worked closely with staff in studying and discussing a sizable body of literature on natural disaster issues,” said NAMIC President and CEO Chuck Chamness. “The statement adopted today will serve to guide member company representatives and staff as the natural disaster debate evolves.”

The 1,700-word statement embraces four general principles:

  • Market freedom and competitive pricing will lead to innovation in developing solutions to problems relating to disaster insurance and mitigation;
  • Competitive pricing and risk-based underwriting are essential to developing and maintaining a viable disaster insurance market;
  • Mitigation must be an indispensable aspect of any disaster risk management and insurance initiatives; and
  • The National Flood Insurance Program should be maintained, but must be reformed.

The statement asserts that a flexible regulatory environment in which insurers are free to price coverage based on risk will create incentives for property owners in high-risk areas to invest in loss mitigation measures. In addition, risk-based pricing will foster greater competition among insurers and increase the availability of property insurance in disaster-prone areas.

The statement also notes that lawmakers and/or regulators sometimes impose rating and underwriting restrictions on property insurers that allow high-risk property owners to pay artificially low premiums, forcing lower-risk property owners to subsidize the insurance costs of high-risk buyers by paying inflated premiums.

“NAMIC believes that using the insurance pricing mechanism to create hidden cross-subsidies among risk classes is not good public policy,” the statement concludes.

The statement notes that the private marketplace thus far has had the capacity to handle natural disasters, but that in a restrictive regulatory environment, a mega-catastrophe comparable to the 1906 San Francisco earthquake could test or exceed that capacity. That, in turn, could create a situation where many insurers could potentially be unable to meet their claim obligations and still offer protection going forward. This would be particularly true where some insurers had established separate single state companies as a way to manage their exposure. The statement states that, in light of these circumstances, consideration of state or federal programs designed to respond to a mega-event may be appropriate.

On the subject of mitigation, the policy statement asserts that effective mitigation efforts, including the development of strong building codes as well as responsible land-use planning, have been shown to greatly reduce the level of property damage and human suffering caused by natural disasters.

“NAMIC supports the concept of federal legislation that would create financial incentives to encourage states to adopt and enforce strong, statewide building codes,” the statement reads, adding, “With respect to existing properties, NAMIC supports government initiatives to create mitigation grant programs to enable homeowners in high-risk areas to invest in risk mitigation measures.”

The policy statement concludes by noting that although the National Flood Insurance Program (NFIP) has operated continuously since 1968, Hurricane Katrina exposed serious shortcomings that must be addressed. To enhance the economic efficiency and financial stability of the NFIP, the statement recommends that premiums be actuarially sound; that the program’s borrowing authority be increased; that funding be increased for the flood hazard mapping program; that stiffer penalties be imposed on financial institutions that fail to require flood coverage; and that additional resources be allocated to improve NFIP public education efforts.

The NAMIC Task Force on Natural Disasters was chaired by Kevin Meskell, Executive Vice President of Quincy Mutual Fire Insurance Company of Quincy, Mass.

Editor’s Note: Reporters wishing more background on the NAMIC statement of principles on natural disasters should contact Robert Detlefsen, NAMIC public policy director at (317) 875-5250 or at

Posted: Monday, June 26, 2006 12:00:00 AM. Modified: Thursday, June 29, 2006 10:11:04 AM.

317.875.5250 - Indianapolis  |  202.628.1558 - Washington, D.C.

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