States, insurers discuss catastrophes

• By SARAH CHACKO
• Advocate Capitol News Bureau
• Published: Jul 24, 2008 - Page: 18A - UPDATED: 12:05 a.m.

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NEW ORLEANS — Louisiana’s insurance industry is ready and could withstand another major hurricane, state Insurance Commissioner Jim Donelon said Wednesday.

“We are better prepared,” Donelon said after participating in a panel discussion on “Insuring for the Next Big One” at the weeklong National Conference of State Legislatures in New Orleans.

Citing the success of Citizens’ Property Insurance Corp., the state insurer of last resort, and two dozen new insurance companies that have come to the state, Donelon said Louisiana homeowners will be protected from future hurricanes and natural disasters.

The NCSL panel was less decisive on whether state or national catastrophe funds would be beneficial to the insurance industry.

A catastrophe fund, also called “cat fund,” is a pool of money that insurance companies can tap into once claims in a natural disaster exceed a certain amount. The idea is to remove some of the risk in doing business in states that are vulnerable to hurricanes, earthquakes and other disasters.

Dennis Burke, vice president for the Reinsurance Association of America, discounted cat funds, saying they depress a market that is currently allowed to spread its risk globally.

Burke called cat funds “off-balance sheet spending,” the kind of thing that Enron was involved in and considered in that case to be a crime.

“Private market is part of the solution; it’s not the problem,” Burke said.

Burke, Donelon and other panelists emphasized the need for improving and enforcing building codes, implementing land-use plans and protecting barrier islands.

“We need to focus on what works,” Burke said.

But Ed Collins, national director of ProtectingAmerica.org, which advocates for a national cat fund, said the system is working well for reinsurers but not consumers.

“We have no idea what is going to happen in the private reinsurance market when there is another series of catastrophes,” he said.

State Sen. Gerald Long, R-Natchitoches, who was present for the panel discussion, said coastal states are overexposed, but the threat of major losses is just as real for states in danger of earthquakes and other natural disasters. Without a larger plan, the nation could be crippled financially and be forced to cut from other government services, he said.