August 26, 2008

Catastrophe Experts Call for Privately Funded Program to Prepare and Protect Texans

CAT Fund would Save Texas Homeowners $735 Million Each Year

(Austin, TX) The nation’s largest coalition of first responders, insurers, businesses and individuals concerned about catastrophe preparation and protection today told Texas lawmakers that a comprehensive catastrophe program that integrates local, state and national resources with funding from private insurance companies would save lives, protect property and save Texas homeowners $735 million each year in their homeowners’ insurance premiums.

'Texans are particularly vulnerable to hurricanes and other massive natural catastrophes.  The Senate’s decision to call these hearings is the first step in making preparations that will protect Texas families from the personal and financial devastation that will unquestionably follow in the aftermath of a Katrina-like hurricane ravaging the Gulf Coast of the state,' said David A. Smith, a national director of ProtectingAmerica.org.

'The warnings are clear and unambiguous.  We are entering a cycle of heightened hurricane activity throughout the Atlantic and Gulf regions.  Surface water temperatures have increased and are fueling hurricanes with increased frequency and furry,' he said.

'The question before the Texas Legislature, other state legislatures and in the Congress is, ‘are we going to heed those warnings and take steps to prepare and protect our families, or are we going to hope for the best, rely on the status quo and make excuses when the inevitable happens?’' Smith told the members of the Senate Business and Commerce Committee.

According to Smith, one of the most potent steps that the Texas legislature could take would be the establishment of a state catastrophe fund.  The fund would be financed by tax exempt deposits from private insurance companies.  Investment earnings by the fund would also be free of state and federal taxes.  Deposits and earnings would grow each year and the fund would serve as a backstop to the private insurance market as well as provide stable and adequate funding for first responder programs, for public and consumer education programs, for improved mitigation and the establishment of other programs that would assure the viability of homes in Texas. 

'The financing of a catastrophe fund is similar to an IRA.  Deposits and earnings would be tax free and grow year after year.  Deposits and the majority of the fund’s investment income would stand behind private insurers and assure Texas families that the resources will be available to repair, rebuild and recover after a truly catastrophic event occurs,' he said.

'As important, is that a portion of the investment income of the fund would be dedicated to mitigation and education programs to protect families before a massive storm makes landfall and to enhance first responder training and equipment to come to the aid of victims during an event,' Smith said.

'ProtectingAmerica.org is suggesting and supporting a comprehensive program that prepares families before catastrophe strikes, protects them when an event occurs and provides assurances that the resources to repair, rebuild and recover will be available in the wake of a massive event,' he said.

The establishment of state catastrophe funds has been endorsed by the National Conference of Insurance Legislators (NCOIL).  The creation of a national backstop for state catastrophe funds has been endorsed by the national Association of Insurance Commissioners (NAIC).

$735 million in annual savings to Texas families

The model legislation proposed by NCOIL has been analyzed by Milliman, Inc., one of the largest and most respected global independent actuarial firms.

According to the Milliman analysis:

• The establishment of a state catastrophe fund would save Texas homeowners $490 million per year in their insurance rates;

• The establishment of a national counterpart to the state fund would save Texas homeowners an additional $245 million each year, and

• Total annual savings to homeowners in Texas from a state and federal fund would be $735 million.

About ProtectingAmerica.org

ProtectingAmerica.org was formed in 2005 and is a non-profit organization consisting of emergency management officials, first responders, disaster relief experts, insurers and others.  Its members include the American Red Cross, the International Association of Fire Fighters, more than 300 other organizations and businesses and more than 15,000 individuals from across the nation.

The non-partisan organization is chaired by James lee Witt and Admiral James M. Loy.  Mr. Witt served for eight years as the director of the Federal Emergency Management Agency.  Admiral Loy was formerly the deputy secretary of the US Department of Homeland Security and formerly served as commandant of the United States Coast Guard.

At the core of ProtectingAmerica.org’s mission is the establishment of a comprehensive, integrated national catastrophe management solution that will better prepare and protect American families, communities, consumers and the American economy from catastrophe.  Among its efforts to support this mission, ProtectingAmerica.org is working to increase public awareness and consumer education; advocate for better coordination with local, state and federal mitigation and recovery efforts, and strengthen emergency response and financial mechanisms to rebuild after a major catastrophe.

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