AIA Comments on Homeowners Defense Act, Feels House Bill Would Push Out Private Insurers
Gov. Marc Racicot, president of the American Insurance Association (AIA), on Friday issued a statement regarding the House vote to approve H.R. 3355, The Homeowners Defense Act of 2007.
Gov. Racicot’s statement follows:
“This legislation falls short in trying to address the problems in coastal insurance markets. It will not generate new private sector insurance, reinsurance or capital market capacity, and is likely to encourage states to create thinly financed, state-run reinsurance facilities that will displace the private market and require a federal government bail-out in the event of a catastrophe.
“The legislation would create incentives for states with well-functioning, private insurance markets to establish state-run reinsurance facilities, because they can take advantage of cheap federal loans.
“H.R. 3355 does not require a state-run reinsurance facility to charge risk-based premiums or maintain adequate reserve levels, nor does it require a state-run reinsurance facility to establish a solid, private-market reinsurance program, or manage its finances to an acceptable level of risk.
“Establishing a ‘consortium,’ or pooling mechanism, as called for in this bill, would enable states to purchase natural catastrophe reinsurance, and sell catastrophe bonds to private investors. However, states already have the option to form risk pools but have chosen not to do so. This is because lower-risk states receive no benefit in pooling its risk with a relatively higher-risk state. It is also not clear how the “consortium” would differ from the functions of private reinsurance brokers and capital market intermediaries.
“AIA maintains that the private insurance system continues to be well-positioned to manage natural catastrophe risk, and the best course is to improve, not displace, the private sector’s ability to serve homeowners and businesses that could face losses from natural catastrophes.”
Source: Source: AIA | Published on November 12, 2007
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