Proposed Regulation Would Require Insurers to Create Natural Disaster Fund in NY
NY Insurance Superintendent Eric Dinallo announced a proposal that would reqire property insurers in the state to create new funds with reserves for hurricanes and other disasters.
Dinallo’s office stated that the proposed regulation would have carriers creating a fund for natural disasters in the state and setting aside the money it charges commercial and residential customers for catastrophe protection, less any taxes paid and the cost of reinsurance. Insurers wouldn't be able to remove their contributions from the fund for 20 years, according to a draft of the regulation, except in the event of a catastrophe.
A single hurricane striking New York City or Long Island could cost at least $100 billion, or more than twice as much as Hurricane Katrina in 2005, according to modelers who calculate insurance losses. Tax and accounting rules discourage companies from reserving for such disasters, Dinallo said in the statement.
“Most people probably think that the extra money they pay on their homeowners insurance for hurricane protection goes into a 'very rainy day fund' to pay claims when hurricanes hit,'' Dinallo said. “In fact, because of current insurance accounting and tax rules, if there is no hurricane, the extra money goes to insurance companies' profits.''
The contributions to the funds would be based on each company's rate filings with the state. The filings, which require regulatory approval, specify anticipated costs for various types of claims and outline expected profits.
Companies including Allstate Corp., the largest home insurer in New York, are dropping customers in parts of the state as their policies expire to reduce potential hurricane losses.
Allstate hasn't reviewed the proposed regulation and can't comment on the specifics of Dinallo's proposal, said spokeswoman Krista Conte.
“We absolutely look forward to having a discussion with the superintendent and definitely agree with his sentiment that a decision to do nothing is a bad decision,'' she said.
The proposal may become a regulation after a 45-day comment period for insurers and customers.
Published on October 5, 2007
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