Travelers Chief: Have Feds Regulate Storm-Zone Rate
By DIANE LEVICK
August 29, 2007 - Hartford Courant
Two years after Hurricane Katrina slammed the Gulf Coast, The Travelers Cos. is floating a novel and controversial idea to ease the insurance-availability problems that have plagued residents from Texas all the way to New England.
Jittery from $40 billion of Katrina claims, insurers have shrunk from covering homes and even businesses in coastal regions, boosted rates - sometimes 85 percent or more - and required customers to install storm shutters or take other protective measures.
So this week, Jay Fishman, chairman and chief executive of The Travelers, proposed the creation of a 50-mile-wide "Coastal Hurricane Zone" from Texas to Maine in which the federal government would regulate rates and rules for property insurance that covers windstorms.
Currently, the states regulate insurance, and in most cases regular homeowners' policies cover windstorms, including hurricanes as well as fire, theft and other "perils."
Under Fishman's proposal, states would continue to regulate the parts of property insurance other than windstorm protection. He isn't specifying whether consumers in the new zone would have to buy separate policies to cover windstorms.
He's also not predicting whether rates along the coast would rise even more, at least initially, or whether premiums inland would drop under his proposal, which he admits lacks detail and calls a "conceptual framework."
The outline, however, was enough to raise some critics to predict that it would make insurance unaffordable to more coastal consumers and would never fly politically.
But Fishman said in an interview Tuesday that he's open to suggestions and that "I wanted to be in the forefront of people who were trying to think of creative solutions."
He criticized congressional efforts to solve coastal insurance problems as merely shifting risk to the government and taxpayers. He prefers a private market-based solution before the next monster hurricane strikes, and says his idea could apply to property insurance for small and medium-sized businesses as well as homeowners.
Federal regulation of windstorm coverage is an alternative to the "inconsistency and unpredictability" of the varying rules in states, said Fishman, who explained his idea in a Wall Street Journal commentary column Monday. Travelers' chief operating officer, Brian MacLean, talked to the Southern Governors Association about the proposal on Sunday.
Fishman told The Courant his concept "is designed to create an environment where insurance companies will be more willing to write wind coverage and to do so at a price that is specifically determined by a region's actual experience."
He noted that "If insurance companies have certainty about the environment in which they write, and they understand the rules going into it, they are going to be far more willing to commit capital to those areas than they do if they have to worry about what the rules will be later."
Going forward, coastal premiums should be based on multiple years' claim experience - perhaps 10-year rolling periods - rather than the current computer model predictions of how much insured damage might be done by future hurricanes, Fishman said.
If actual hurricane damage over the period is less than expected, a portion of premiums would be returned to customers. If claims are higher than anticipated, prices would be increased, Fishman said.
"None of us know whether the wind is going to blow or not," Fishman said. "I don't want to be part of an industry that profits on the speculation of whether the wind blows. ... I want to be part of the solution, not the problem."
J. Robert Hunter, director of insurance for the Consumer Federation of America, likes Fishman's idea of returning excess premiums to customers and notes insurers historically have fought excess-profits laws.
But Hunter thinks Fishman is "Pollyana-ish" if he expects the federal government to do meaningful land-use management that would reduce the damage costs from hurricanes. Fishman's proposal calls for federal incentives to state and local governments to adopt and enforce better building codes, and land-use management that recognizes the importance of coastal wetlands in minimizing a hurricane's impact.
In addition, the idea of the federal government regulating insurance in just one part of a state isn't politically feasible, and land-use restrictions wouldn't appeal to Republicans, Hunter said. Besides, state regulators have often rejected incursions on their turf.
Tom Swan, executive director of the Connecticut Citizen Action Group, believes Fishman's concern about overdevelopment at the coast is a good point, but Swan doubts the Coastal Hurricane Zone would bring inlanders rate relief.
"If Mr. Fishman designed it, consumers would get hosed," Swan said, adding that insurers just want minimal regulation.
Fishman, though, says he's not looking for less regulation.
"Make it as onerous, make it as difficult, make it as pro-consumerist as anyone would like," he said. "Just make it predictable."
Unless federal oversight is properly designed, Swan said, "it takes [consumers'] ability to appeal or challenge their decisions that much further away and [provides] less of an ability to shape those policies."
In addition, Swan says insurers haven't done enough to fight climate change and won't have incentive to advance in that area if they get the kind of regulatory set-up that Fishman envisions.
Connecticut Insurance Commissioner Thomas R. Sullivan, who discussed the proposal with Fishman recently, praised the CEO for "trying to be part of the solution" but reserved judgment until more details are fleshed out.
Fishman's proposal involving federal regulation is a "red flag" to the Property Casualty Insurers Association of America. The trade group supports state regulation, but the state system needs improvement and "nothing should be taken off the table," said Joseph Annotti, the association's senior vice president of public affairs.
He believes state regulators would "probably come out of the woodwork" to oppose the feds stepping in, but added, "The political feasibility of any plan is in direct correlation to the severity of storms we get this year or next."
Contact Diane Levick at dlevick@courant.com.
Copyright © 2007, The Hartford Courant
