Fighting Words in Response to AIA’s Windstorm Coverage Stance

On Thursday, “Daily NEWSFLASH” featured a letter written by AIA President Marc Racicot to Representative Gene Taylor, sharing with him the analysis of an AIA-commissioned study to examine the effects of including windstorm insurance in the National Flood Insurance Program (NFIP). The findings concluded that incorporating windstorm insurance would significantly increase NFIP deficits - in some scenarios, between $100 to $200 billion.  
 
This letter triggered a fiery reaction from Brian Martin, policy director for Rep. Gene Taylor, who castigated the AIA for releasing what he said is erroneous data in fighting legislation requiring the National Flood Insurance Program to add windstorm coverage.  
 
In an email (a copy of which was obtained by the “National Underwriter”) to a lobbyist group, Mr. Martin said that the AIA had “cooked” the numbers in the consultant’s report. He suggested that Stamford, Conn.-based Towers Perrin’s study drew its conclusions based on faulty assumptions it made about the program’s scope if windstorm is added.  
 
“Wow. You really cooked the books on that one. Are there no professional standards in the actuarial industry?”, Mr. Martin wrote in his email.  
 
Mr. Martin wrote that Towers Perrin assumed wind premiums would be set 20 percent lower than annual loss estimates would require. "I assume we would use RMS or other risk models' annual loss estimates to set premiums," he said in the e-mail. "There, I solved the problem."  
 
He also added that in its analysis, to "further cook the numbers," Towers Perrin projects what would happen if the new program captured 100 percent of the wind market with the 20 percent discount in premiums, or captured the highest-risk 20 percent of the market but did not charge higher premiums in high-risk areas than they would have charged in low-risk areas.  
 
"Neither of those scenarios is even possible under the bill, much less likely," he said. "Why not ask for an honest assessment of the bill?"  
 
“What we are proposing is not radical,” Mr. Martin said. “Your members already are dropping millions of policyholders and enrolling them in state wind pools and other state-sponsored residual markets. It really is not rocket science to add wind coverage to flood coverage in hurricane risk areas in a fiscally responsible manner.”  
 
In response to Mr. Martin’s e-mail, Stephen Lowe, managing director of the p-c consulting practice at Towers Perrin, said he was “taken aback by the tone of Mr. Martin’s comments.” He added, “Our work was prepared within actuarial standards, and we certainly stand by the work.”  
 
Dennis Kelly, a spokesman for AIA, said, “We respectfully disagree [with Mr. Martin’s comments] and hope the analysis is part of the discussion at the hearing.”  
 
Mr. Kelly added that the actuarial analysis by Towers Perrin “necessarily made assumptions about the proposed program, and those assumptions were based on a careful observation of the private property insurance market in coastal states.”  
 
“Our experience with the NFIP, as was recently confirmed by the Congressional Budget Office, is that legislation requiring that rates for a federal insurance program be based on actuarial principles does not guarantee rate adequacy,” he said.