Coalition Letter Builds Non-Admitted Insurer Legislation

MBA (9/22/2008 ) Murray, Michael
The Natural Catastrophe Policyholders Coalition —which includes the Mortgage Bankers Association—sent a letter to Senate Banking Committee Chairman Christopher Dodd, D-Conn., detailing the importance of the Non-Admitted Lines and Reinsurance Act of 2007, under S. 929 and H.R. 1065.
“Ensuring adequate catastrophic insurance capacity for commercial and multifamily property owners remains a top priority for the NCPC. The passage of [the Act] by the Senate represents an important step for increasing catastrophic insurance capacity,” the letter said.

In November 2007, the Government Accounting Office’s report to the House Committee on Financial Services estimated that the federal government provided nearly $26 billion to homeowners who lacked adequate insurance in response to the 2005 Hurricanes Katrina, Rita and Wilma .

“Large losses associated with natural catastrophes are some of the biggest exposures that insurers face. Particularly in catastrophe-prone locations, government insurance programs have tended not to charge premiums that reflect the actual risks that homeowners face, resulting in financial deficits,” the GAO report said.

The NCPC's letter pointed out that finding natural catastrophe insurance has become more difficult and expensive for commercial property owners because “admitted” insurance companies would reduce their exposure in states and/or regions impacted by a major natural catastrophe and no longer write policies for the impacted states or regions or significantly reduce the number of policies they write in these areas.

"In these instances, non-admitted insurance carriers serve a vital role by filling the insurance capacity gap caused by the reduced admitted carrier insurance," the letter said.

Commercial and multifamily property loan documents require owners to have insurance coverage in place for the duration of the loan, including natural catastrophe insurance coverage.

The GAO report said federal reinsurance for state programs could lead to broader coverage but could also displace private reinsurance. The agency identified several policy options for tax-based incentives for insurance companies, homeowners, investors and state governments.

“But these options, which could help recipients better address catastrophe risk, could also result in ongoing costs to taxpayers,” the GAO report said. “While some options would address the public policy goals of charging risk-based rates, encourage broad participation, or promote greater private sector participation, these policy goals need to be balanced with the desire to make rates affordable.”

The National Association of Insurance Commissioners “generally agreed with GAO’s report findings,” the agency said.

This year was the heaviest hurricane season since Katrina hit the Gulf coast more than three years ago. Hurricane Gustav hit the Louisiana area without the intensity of Katrina, but Hurricane Ike caused severe damage to Galveston, Texas and many Houston residents had property damage from falling trees with power yet to be restored in a number of homes and businesses. The hurricane was blamed for more than 60 deaths.

The Washington Post reported last week that the American Red Cross was falling into debt from its aid in Hurricanes Gustav and Ike, based on a recent GAO report. The report said the Red Cross and other disaster relief charities still face shortages in trained volunteers and have not dedicated enough resources for disaster preparedness, based on the inability to raise funds through private donations in a weakened economy.

Passage of S. 929 or H.R. 1065, however, would provide the means to reduce uncertainty regarding availability of natural catastrophe insurance in the wake of a major hurricane or other natural disaster, NCPC's letter noted.

“Given the fragile state of the commercial and multifamily lending and capital markets, this consideration assumes heightened importance,” the letter said.

The Natural Catastrophe Policyholders Coalition includes MBA; the American Resort Development Association; Building Owners and Managers Association; Chamber Southwest Louisiana; Commercial Mortgage Securities Association; Greater New Orleans Inc.; International Council of Shopping Centers; National Apartment Association; National Association of Industrial and Office Properties; National Association of Real Estate Investment Trusts; National Association of Realtors and the National Multi Housing Council.