INDIANAPOLIS (Feb. 13, 2008) – Certain proposals meant to address homeowners insurance market developments in Massachusetts’ coastal areas may do more harm than good, according to testimony of the National Association of Mutual Insurance Companies (NAMIC).
In particular, proposals that would hamper insurers’ ability to underwrite or manage their exposure to catastrophic risk should be rejected because they “would result in adverse consequences including potentially exacerbating the problems they are meant to address,” said Paul Tetrault, NAMIC’s Northeast state affairs manager. “It is NAMIC’s belief that the free market is the best and most efficient means of providing protection against catastrophic loss. It is imperative, therefore, to focus on measures that can enhance rather than interfere with the proper functioning of the market.”
Tetrault testified before the Joint Committee on Financial Services as it considered various property insurance-related bills and recommendations of a legislatively mandated commission comprised of various stakeholders. The Special Commission to Review the Current State of the Homeowners Insurance Market in the Commonwealth was formed in response to price and availability concerns in the state’s coastal areas. After hearing from the public and various experts last year, the panel issued a report containing a range of recommendations.
Tetrault commended the Legislature for approaching the matter “in a deliberative fashion by assembling a commission of the various interested parties to listen to consumers as well as experts and attempt to develop consensus on ways to address the matter.” But he noted that “the challenging nature of the issue is illustrated by the issuance of dissenting opinions by members of the commission.”
Among the commission's recommendations is a proposal to establish a catastrophic event fund designed to reduce the reinsurance costs of insurers, with the intention that any savings would be passed on to consumers. Tetrault noted that not all commission members agreed on that and said NAMIC also does not support a state catastrophe fund.
“The commission report’s dissenting opinion of insurance industry representatives shows that there are many reasons to question whether this proposal would produce the desired result or alternatively have adverse consequences,” Tetrault testified. “The concerns stated therein are consistent with NAMIC’s belief that the free market is best suited to respond to all but the most extreme instances of natural disasters.”
The commission also recommended that an independent public entity study the accuracy and reliability of catastrophe models insurers use to help determine accurate rates.
“Before resources are devoted to the creation of a formal public entity, it would make sense to fully explore possibilities for gaining better understanding in a less formalized process,” Tetrault testified. He pointed out that much of what goes into models can, and has been disclosed, and that insurers have been willing to explain how they use models in their business plans to evaluate their books of business in a responsible fashion. “In short, it is very likely that the transparency sought can be achieved without the creation of a public entity.”
The commission’s recommendation for enhanced consumer education regarding insurance products, the marketplace, and coverage options has an “unquestionably commendable” goal, Tetrault testified, though he raised concerns about the impact and practicality of specific recommended measures. “Consumers faced with rising premium costs should have the opportunity to understand what they can do to make the best choices for their specific situation," Tetrault said. “In addition to coverage options, policyholders should be informed as to how mitigation measures can affect their costs and options in the marketplace.”
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Posted: Wednesday, February 13, 2008 12:00:00 AM. Modified: Thursday, February 28, 2008 2:26:30 PM.
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