By Dan Reynolds, senior editor of Risk & Insurance®
From a financial perspective, the government-backed National Flood Insurance Program hasn't had the best run recently.
Since the disastrous hurricane season of 2005, the federal program, which operates under the supervision of the Federal Emergency Management Agency, has struggled with debt, a debt that now stands at some $17 billion.
Congress has historically taken quite a few runs at the topic of comprehensive national disaster risk management, according to a 2009 white paper written by the National Association of Insurance Commissioners. Despite the initiatives, the beleaguered NFIP is its only existing disaster risk management program, according to NAIC.
But for the first time, the federal government may be taking aim at a more comprehensive approach to disaster research and risk management. A Senate version of a bill that would reform the National Flood Insurance Program would create a National Commission on Natural Catastrophe Risk Management and Insurance.
At first glance, those who fear yet more layers of government bureaucracy might be taken aback. After all, do we not have a thriving private sector insurance business globally and in the United States? And what does the insurance industry do so well? It analyzes risk and underwrites it, does it not?
Yes indeed. But the national faith in FEMA, for example, has never quite recovered from the perception that it bungled disaster management in and around New Orleans as flood waters ravaged Louisiana, Mississippi and other states in 2005, in the wake of Hurricane Katrina.
Far greater and more expensive disasters await us, according to catastrophe risk modelers.
The San Francisco earthquake and fire of 2006 would register $200 billion in uninsured property losses were it to occur today, according to the NAIC white paper. A repeat of the 1938 hurricane that made landfall in the Northeast would cause damage exceeding $300 billion. Uninsured losses from a quake such as the one that occurred along the New Madrid fault in 1811 and 1812 would cause potential economic damages of $275 billion.
You get the picture. We have a private sector insurance network, which does a good job as far as it goes. But there are massive amounts of uninsured values in the United States which lie exposed to yet more disaster.
The 2009 NAIC white paper argued for a comprehensive national disaster plan. So, in spirit, at least, the NAIC seems to be in agreement with this Senate attempt to establish a national commission.
"The NAIC has been generally supportive of the creation of a national study commission since Sept. 23, 2009," said a NAIC spokeswoman in an emailed response to questions from Risk & Insurance® on Aug. 7, referring to the publication date of its white paper.
In terms of this latest specific recent attempt on the part of the Senate to establish a commission, NAIC is not coming out with an open endorsement, at least at this stage.
"The NAIC is regularly in contact with Congress as they work on legislation that impacts insurance regulation. We have not endorsed any specific piece of legislation on this issue currently before Congress," said the NAIC spokeswoman in her e-mail.
"The commission has been included in previous drafts the Senate has put forward and would study the risks posed to the US by natural catastrophes and report back to Congress including recommendations for action," said Blain Rethmeier, a spokesman for the Washington, D.C.-based American Insurance Association.
"In the draft, the commission would be disbanded 90 days after it submits its report.That being said, the most important objective for AIA remains enacting a long-term extension of the program that includes more fundamental reforms such as movement toward risk-based premiums and a reduction in price subsidies," Rethmeier said Aug. 9 in an e-mailed response to questions from Risk & Insurance®.
August 9, 2011
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