Oct. 9 2007

Catastrophe Experts and Others Urge More than Catastrophe Reserves
Urge comprehensive catastrophe plan for New York

The nation’s largest coalition of catastrophe response and recovery experts today praised New York’s state insurance superintendent for confronting the issues of affordability and availability of homeowners’ insurance in densely populated communities throughout Long Island and elsewhere, but cautioned that homeowners will need a more comprehensive program if they are to realize long term savings and increased availability of coverage in the state.

'The superintendent has rightly acknowledged that a crisis is upon us, and that is an important first step. But this situation demands a comprehensive solution that is not limited only to encouraging expanded catastrophe reserves,' said David A. Smith a national director of ProtectingAmerica.org and its Empire State affiliate, ProtectingNewYork.org.

'What New York needs is a solution that takes real costs out of the system by reducing our dependence on foreign reinsurers through the creation of a state catastrophe fund that would work in concert with a nation backstop similar to that embraced by New York’s members of the House of Representatives and by Senator Clinton,' Smith said.

'An integrated state and national program would reduce by nearly a half-billion dollars the cost of homeowners’ insurance in New York, would supplement funding for first responders across the state and would enhance mitigation efforts that would save lives and protect property,' he added.

The House of Representatives is currently considering legislation that would create a national catastrophe backstop program. The bill (HR 3355) was recently reported from committee and is expected to be considered on the House floor before the next hurricane season. Amendments to HR 3355 are being prepared that are expected to include provisions of legislation co-sponsored by Rep. Carolyn Maloney (D-NY 14) and Rep. Steve Israel (D-NY 2). That legislation, when coupled with state catastrophe funds, would reduce the annual cost of homeowners’ insurance by an estimated $11.6 billion across the nation and by $452.3 million in the state of New York.

Support for a comprehensive catastrophe protection program was announced by Sen. Hillary Clinton at a presidential campaign appearance in Florida in May.

ProtectingAmerica.Org is a non-profit organization co-chaired by former FEMA director James Lee Witt and former deputy secretary of the US Department of Homeland Security Admiral James M. Loy. The organization’s membership includes the American Red Cross, first responders large and small business, 275 organizations and several thousand individual members. The New York affiliate includes more than 50 organizations and 1,000 individual members.

The organization supports the creation of an integrated system of state and national catastrophe funds that would serve as a backstop to the traditional insurance market. The funds would be financed through insurer contributions, not taxpayer dollars. A portion of the investment income of state catastrophe funds would be dedicated to supporting first responder programs, mitigation efforts and improved homeowner education.

The estimated $452.3 million in annual savings to New York homeowners would be generated because:

• The normal operating costs of a State Catastrophe Fund can be as low as 1% of the annual premium compared with the operating costs of private reinsurance, which can range between 10% to 15% of the premium collected;

• A State Catastrophe Fund does not pay reinsurance brokers commissions;

• A State Catastrophe Fund has no underwriting costs since it is a mandatory program requiring a minimum level of participation by all insurers that sell residential property insurance in a state;

• Since a State Catastrophe Fund is a program that benefits citizens of a state, it does not pay federal or state taxes; and

• A State Catastrophe Fund has the ability to issue tax exempt debt, which will result in lower financing costs should the need arise to finance losses with revenue bonds.