Only 14 percent of California homeowners have earthquake insurance. Why? Earthquake coverage can double the cost to insure a home, and deductibles are 10 - 15% of the home's replacement cost.
In the Miami-Dade County area, one-third of homeowners have no choice but to pay the highest rates in the market to the state-run Citizens Property Insurance Corporation, the 'insurer of last resort,' because no private insurer will sell homeowners insurance.
The cost of reinsurance – the insurance that insurance companies buy to manage their exposure to catastrophic losses – is a major factor that drives the price consumers pay for property insurance. A state/federal program to backstop insurance companies when payouts exceed a specific threshold will enable companies to make more insurance available to consumers, and at a lower cost.
Catastrophe funds, at both the federal and state levels, would provide the backstop necessary for companies to insure against hurricanes and earthquakes in a financially responsible manner that doesn't threaten their solvency or their ability to protect their customers from other potential losses. It has the potential to help stabilize markets following a catastrophe, prevent insurance availability problems and reduce insurance costs for consumers.
Public and private stakeholders must be engaged and legislation should be enacted at both the state and federal levels to more effectively mobilize and deploy resources needed for disaster recovery. Throwing money at catastrophe victims after the fact is an inefficient and inequitable process that does a disservice to consumers and taxpayers as well as the victims who need money to rebuild their lives.
A comprehensive, integrated state-federal approach will enable us to efficiently distribute support, reduce federal deficits and help Americans rebuild from a wide variety of catastrophes from which there is limited protection today.
- Barack Obama Op-Ed: Spread Risk with National Disaster Fund (St. Petersburg Times 9/7/08)