Insuring Catastrophic Risks
April 25, 2002
Federal Legislation Would Make Reinsurance Available For Homeowner?s Insurance
By Bridget McCrea
Inman News Features
U.S. Rep. Dave Weldon of Florida recently introduced legislation in that?s designed to help ease the cost of homeowner?s insurance by facilitating reinsurance coverage for such risks.
"The Homeowners? Insurance Availability Act," H.R. 4025, would "make reinsurance coverage under this act available to improve the availability of homeowner?s insurance for the purpose of facilitating the pooling, and spreading the risk, of catastrophic financial losses from disasters and to improve the solvency of homeowners' insurance markets," according to the official description.
Weldon said he introduced the act because homeowners in certain disaster-prone areas are paying very high prices for property and casualty insurance or are becoming blocked from obtaining such insurance altogether.
"A number of insurance companies became insolvent following Hurricane Andrew in 1992 and the Northridge Earthquake," said Weldon. "Should a mega-event occur, a number of insurers could become insolvent and that would ripple through the entire nation."
Weldon pointed to California and Florida as two states that are attempting to deal with their states? risks through catastrophic risk pools.
But large events are more regional than they are state-specific, said Weldon.
"The capital necessary to address the kinds of losses the bill hopes to prepare for are more regional," he said. "And that?s the rationale for the Federal approach."
Weldon said H.R. 4025 is the right fix for the insurance problem because it takes creates "an incentive for reinsurers and primary insurers to deal with the availability and affordability of catastrophic risk in a way that is fair, risk-based and national in scope." Weldon said so far there is no opposition to H.R. 4025. He called the bill a "starting point" for new discussions about catastrophic risk legislation.
"It will probably be replaced by some bill that incorporates the recommendations and suggestions of the stakeholders," he said.
H.R. 4025 currently is being reviewed by the House Financial Services Committee.
Copyright: Inman News Service