Hartford CEO Unveils Coastal Insurance Plan

HARTFORD, Conn., Aug 01, 2008 (A. M. Best via COMTEX) -- HIG | Quote | Chart | News | PowerRating -- Hartford Financial Services Group is joining a growing list of insurance companies to unveil plans they say are solutions to the coastal homeowners insurance issue.

Hartford's "Coastal Catastrophe Partnership," introduced by Ramani Ayer, chief executive, says solutions require a partnership by policyholders, state and federal government and the private insurance industry. Using what he calls six core principles, Ayer said consistent and available coastal insurance coverage from private insurers is a real possibility.

"To help reduce our nation's exposure to natural disaster risk, we must act now to implement a long-term solution that will expedite recovery, reduce costs, and provide incentives for private insurers to return to the coasts," Ayer wrote in a company report.

Ayer said the solution, outlined as six core principles, includes:

-- Sensible land-use planning and enforced building codes.

-- Expansion of private-market participation through regulation. "The cost of insurance must reflect the risk being insured in order to attract private capital."

-- Conformity of state-sponsored insurance providers to risk-based pricing and adequate capital, so that they are truly insurers of last resort.

-- A federal backstop for extreme catastrophic events.

-- Reaffirmation of state-regulated policy language by lawmakers and the courts.

-- Financial assistance for families and retirees funded at the state level.

"Coastal homeowners must recognize the substantial cost of insuring homes exposed to hurricanes and other natural disasters," said Ayer, who also proposed a requirement that coastal homeowners buy flood insurance. As for the role of the federal government, "a properly designed federal backstop could relieve state and local sectors of absorbing a growing risk beyond their means."

Travelers Cos., Nationwide Mutual Insurance Co. and the Independent Insurance Agents & Brokers of America also have announced support for a plan to create a coastal wind zone and the formation of a federal commission to enforce a uniform set of rules for coverage of named storms. Based on a plan introduced by Travelers Chairman Jay S. Fishman, the proposal includes what the group calls the "four pillars." The plan calls for a federal reinsurance mechanism; attention to building codes and other mitigation efforts; a specification that only coastal wind coverage would be federally regulated; and the establishment of risk-based rates by private insurers, using approved models with rate changes possible when ordered by regulators (BestWire, July 16, 2008).

The insured value of properties in coastal areas of the United States grew at a compound annual rate of 7% in the three years from 2004 through 2007, according to an AIR Worldwide study. The study puts the insured value of coastal properties from Texas to Maine at $8.9 trillion, or 17% of the insured value of properties in all the included states. Florida has $2.5 trillion of insured coastal properties. New York is next with $2.4 trillion, followed by Texas with $894 billion, Massachusetts with $773 billion and New Jersey with $636 billion.

(By Chad Hemenway, associate editor, BestWeek: Chad.Hemenway@ambest.com)

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