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Canceled Coastal Insurance Policies Argue For National Disaster Fund

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The Tampa Tribune

Published: October 20, 2007

U.S. Sen. Bill Nelson has been pushing it since he was elected state insurance commissioner more than a decade ago, and Gov.Charlie Crist pounded the Washington pavement earlier this year hoping to persuade lawmakers a national disaster fund is necessary to protect the home front.

But if anything can convince Congress to develop a plan to help pay for the after-effects of a natural disaster or act of terrorism, it should be that insurance companies up and down the East Coast are dropping policyholders because the insurers don't want to take on the risk.

Importantly, it's not just happening to Floridians and other Gulf Coast survivors of hurricanes Katrina, Rita and the rest. The New York Times reported last week that in the last three years insurers have dropped coverage for more than 3 million customers and 'have essentially begun to redraw the outline of the eastern United States somewhere near the Appalachian Trail.'

What we're seeing is a general reluctance by some of the biggest insurers to expand coverage or even offer coverage to coastal residents of the Eastern Seaboard. And in the absence of affordable, reliable insurance coverage, a disaster fund of some sort becomes a necessity.

The Times reports that since last year, Allstate, State Farm, Liberty Mutual Fire Insurance Co. and others have turned down new business in New Jersey, Connecticut, Rhode Island, Maryland, Massachusetts and eight counties in southern New York.

The paper acknowledges that most of these Northeastern home and business owners have been able to find alternative coverage, but it has cost them in the form of higher rates and larger deductibles. So those lawmakers who may not have considered disaster legislation a top priority may want to reconsider.

Nelson and Sen. Mel Martinez would like to see the creation of a congressional panel to consider an emergency fund. The governor calls it a matter of national defense, and he's right. The government has a duty to protect its citizens.

Will Congress respond? Two bills are making their way through the chambers. The House passed a bill that would include windstorm coverage along with the federal flood-insurance program, but the Senate version does not include wind insurance. Another bill would allow state-sponsored insurance funds to pool their catastrophe risk with one another, then transfer that risk to the private markets through catastrophe bonds and reinsurance contracts.

It's understandable that lawmakers from states less threatened by destructive storms would think twice about helping to keep the costs down for those of us who choose to live in Hurricane Alley. But when insurance companies are unwilling to write new coverage or are dropping coverage in large areas of the country, market forces alone can't solve the problem.

This is a national issue that demands a national solution: a national disaster fund.

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