Storms focus Congress on protection gap
The scale of the protection gap in the US
highlighted in the aftermath of the recent
hurricanes could help nudge the political
conversation around how future disasters are
financed towards a greater willingness to involve
the private sector in risk mitigation.
That is the view of Frank Nutter, president of the
Reinsurance Association of America (RAA), who
argues that Congress will be hit with multiple requests
for disaster assistance in the wake of the recent
storms, as well as having potentially to refinance the
National Flood Insurance Program (NFIP).
“Congress will start to recognise that postdisaster
finance is not the best way of dealing with
this—they may focus more on risk mitigation
strategies and incentives to get insurance
coverage in place as a result,” Nutter said.
This is a much wider issue than windstorm or
flood risk in Florida, he stresses. For example, it
is estimated that only around 10
percent of homes in California
have insurance protection against
earthquake risk, despite the efforts
of the California Earthquake
Authority, while penetration rates
of flood insurance remain low
“There is an element of
encouraging people to take
responsibility for where they live
and how they are protected. But recent events
also illustrate the value of the re/insurance
industry,” Nutter said.
“They are on the scene quickly, writing cheques
and arranging temporary accommodation. In
contrast, government funds take much longer to
arrange and the amounts are always inadequate.
All this highlights the protection gap and the fact
that other solutions are available.”
Nutter added that the RAA
is focused on the principle of
risks currently borne by the US
government being moved into the
private sector across several sectors.
A risk transfer programme for the
Export–Import Bank of the United
States has been explored, while
secondary mortgage risk has been
successfully transferred for several
years now and this market is growing quickly.
“The reinsurance market is also supportive
of terrorism risks being transferred. A number
of risks the government is ultimately exposed to
could be transferred and, especially when you
look at the enormous capacity the capital markets
potentially have through the ILS markets, the
potential is enormous,” he concluded. n
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