Print Print | Email Facebook Twitter Share ThisShareThis

Coastal Insurance ‘Solutions’ Could Make Matters Worse, NAMIC Official Warns in Trade Publication Article

INDIANAPOLIS (Jan. 31, 2007) - Changes in the coastal property insurance market that have caused consternation for property owners present a public policy challenge because many measures put forward as “solutions” would actually make matters worse, according to a recent article in The Standard, a leading insurance industry trade publication.

The article, authored by Paul Tetrault, Northeast state affairs manager for the National Association of Mutual Insurance Companies (NAMIC), describes the factors that have led to rate increases, mitigation requirements, and nonrenewals, and warns against the adoption of quick-fixes that could ultimately have an effect that is the opposite of what is intended.

While recent changes in property insurance may seem sudden and extreme, Tetrault points out that they are actually the result of decades-long trends in living patterns and technological advancements. Understanding the current insurance climate can help policyholders and insurers alike come to terms with the need for long-term approaches aimed at keeping insurance available and affordable.

According to Tetrault, a confluence of factors has created the current situation. They include:

  • Increased construction of high-value properties in coastal areas.
  • Increased use of more sophisticated ‘modeling’ techniques to determine insurers’ risk. Modeling enables insurers and others to realistically determine the likelihood and costs of catastrophic events. To put it simply, more is known today about the potential effects of storms than in years past.
  • Long-range weather forecasting. Meteorologists believe we are entering an extended period of increased hurricane activity.

“Increased coastal construction together with increased hurricane activity to destroy that construction is obviously a recipe for trouble,” Tetrault writes. “And the increased use of models has brought this situation to the attention of not only insurers but also rating agencies, regulators charged with solvency oversight, and reinsurers.”

Tetrault explains in the article that because of these factors, insurance companies with substantial amounts of coastal business have realized that they have more exposure than they can prudently maintain. Responsive actions taken by such insurers, including rate increases, higher deductibles, and mitigation requirements, might not be things that property owners like, Tetrault acknowledges, but they are in fact appropriate and prudent under the circumstances.

Insurers have a responsibility to make sure they have money available to pay claims when needed. “By seeking to protect their financial viability, insurers are serving the interests of their policyholders and the public,” Tetrault points out.

Property owners affected by market developments have turned to their elected officials for solutions, but Tetrault suggests that there is no quick or easy answer. Moreover, he warns that regulatory and legislative measures that appear to be solutions, such as restrictions on insurers’ ability to underwrite or nonrenew business, could ultimately make insurance less available and affordable.

“Attempts to address the situation by imposing restrictions on insurers’ ability to underwrite risk can wreak havoc in the marketplace, transforming a situation that is challenging for all participants into a bona fide crisis,” Tetrault writes. “The way to maintain a functional insurance market for all participants is to maintain underwriting freedom.”

The public needs to understand that severe hurricanes have struck the Northeast before and will do so again, Tetrault asserts. “When (not if) an event does occur, the property casualty insurance industry will be instrumental in helping the region recover,” the article asserts, “It is imperative that marketplace developments are not permitted to result in misguided measures that could impair the market or hamper the ability of the industry to fulfill its essential role.”

For more information or to arrange an interview with the author, please contact Nancy Grover at (202) 580-6742 or ngrover@namic.org.


For further information, contact
Nancy Grover
(202) 628-1558 Tel
(202) 628-1601 Fax
ngrover@namic.org

Posted: Wednesday, January 31, 2007 12:00:00 AM. Modified: Thursday, February 01, 2007 9:49:12 AM.

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

NAMIC | Where the future of insurance has its voice TM