Insurance lobbyists have been working at a fevered pace since Hurricane Katrina first slammed into the Gulf Coast, but their focus is starting to shift from the challenge of paying out claims to the fate of the industry’s legislative agenda.
Much of U.S. insurers’ ability to cover the estimated $60-billion-plus damages from the disaster is due to reinsurance coverage from multinational corporations whose financial health is already wavering from the hit. But reinsurers do not underwrite terrorism policies, making some insurance lobbyists more confident that Congress will extend government coverage under the Terrorism Risk Insurance Act (TRIA) past its Dec. 31 expiration.
Katrina’s impact on the second long-term insurance issue before lawmakers, whether to allow federal in addition to state-based regulation, is less clear. Insurance lobbyists say privately that the next few months are crucial and that ballooning rates in the Gulf region as companies balk from high-risk policies could doom the industry’s chances for an optional federal charter.
“I would be getting my ass kicked by [Rep.] Richard Baker’s [R-La.] people if I say this undermines the case for rate deregulation, but there is sensitivity right now as to what rates are going to look like in coastal areas,” said one insurance lobbyist who asked to remain anonymous. “Companies are holding their breath with respect to writing new business.”
Baker heads the House Financial Services Committee’s panel on capital markets and insurance. Together with full-committee Chairman Rep. Mike Oxley (R-Ohio), Baker has swung into action and scheduled two Katrina-related hearings for this week, tomorrow on the storm’s financial industry impact and Thursday on the hurricane’s effect on housing needs. Many of the Hill’s top insurance lobbyists will be testifying tomorrow.
For now, insurers are focusing on swift response to immediate congressional needs, especially requests from lawmakers who represent affected areas, and working with myriad agencies to help claims adjusters get access to devastated property. The shortage of fuel and absence of mail service in particular have required insurance trade groups to assist the government so that residents can receive needed awards quickly.
“We are not on Capitol Hill asking for financial assistance because our companies tell us that they can handle the billions of dollars in claims that will come from Katrina. However, we are talking with the administration and federal agencies about how to quickly work through logistical challenges so that we can expedite the claims process,” said Leigh Ann Pusey, senior vice president of government affairs at the American Insurance Association (AIA).
Though the bulk of the hurricane’s urgent damage claims are property-casualty-related, life insurers are freely offering their services as well. Frank Keating, president and CEO of the American Council of Life Insurers, said he wrote to the insurance commissioners and governors of Alabama, Louisiana and Mississippi as Katrina was first making landfall to offer his group’s services in coping with the catastrophe.
“It obviously was important at the outset for us to be ready to help those families affected to be whole,” Keating said. He also pointed to the remainder of this year as a make-or-break period for insurance regulatory reformers who hope the industry can assure an overextended Congress of its continuing solvency in a post-Katrina world.
“The crowded schedule will have a retarding effect, but to the extent that there can be some regulatory handling of insurance issues there will be either greater or less pressure for us to have a federal regulator,” depending on insurers’ performance, Keating said.
Post-Katrina insurance payouts will be disbursed largely based on adjusters’ decisions to classify damage as wind- or flood-based, with the latter category being covered by the government’s National Flood Insurance Program (NFIP). Though the House rushed last week to pass Rep. Bob Ney’s (R-Ohio) bill that more than doubles NFIP borrowing authority, lawmakers are weighing whether to pressure insurers to assume some of the financial burden from flood claims.
The government must rely on insurance companies to make informed judgments, said Ben McKay, director of federal affairs at the Property Casualty Insurers of America.
“If the government wants to give more than what the flood program is going to, Congress can decide that and that’s tax dollars,” McKay said. “Being forced to [help] changes all the rules. It’s a tax on insurance companies.”
Reinsurers continue to ratchet up their estimated losses to account for the coastal areas still being assessed for the first time since the storm, and hedge funds that only recently have invested in reinsurance are facing more than $1 billion in potential loss. Insurance lobbyists have followed with a subtle but constant reminder that reinsurance’s essential role in Katrina recovery must be played by the federal government in the case of a future terrorist attack, using the hurricane to argue for TRIA renewal.
“The public-policy issues surrounding Katrina and TRIA are dissimilar, in the sense that the global reinsurance marketplace for terrorism coverage went away and hasn’t come back after 9-11,” noted Joel Wood, a lobbyist for the Council of Insurance Agents and Brokers (CIAB).
Charles Symington, top lobbyist at the Independent Insurance Agents and Brokers of America, also called the “Big I,” predicted that Katrina could jump-start debate over whether to couple TRIA with a federalized natural-disaster insurance program. Two Florida Republicans, Reps. Mark Foley and Ginny Brown-Waite, introduced similar bills on the issue after four hurricanes walloped their state last year.
“The industry has never been able to get on the same page” on creating broad government disaster reinsurance, Symington said. “At the very least, the dialogue will be reignited.” The “Big I” has set up hurricane-relief funds and collected donations from state affiliates, as have most of the major insurance associations.