The chief executive of Allstate Corp., one of the largest U.S. insurance companies, on Friday endorsed a proposal to create a national insurance catastrophe fund as a backstop to state disaster funds.
Several Florida lawmakers have proposed legislation to create a Consumer Hurricane and Earthquake Protection Fund to provide reinsurance to insurance companies at lower rates than they can get on the private market. The fund also would cover tornados, volcanic eruptions and other disasters.
Reinsurance is backup insurance sold by some insurance companies to other insurers, spreading risk so that huge losses can be covered.
"America is woefully unprepared for another event like (Hurricane) Katrina," Allstate Chairman and CEO Edward Liddy said Friday in a telephone interview. He made the case for a new fund earlier in the day during a speech at the National Press Club.
But industry observers say only a few insurance companies support the proposal. Most of them, like Allstate, specialize in personal insurance.
The American Insurance Association, which represents property and casualty insurers, opposes the legislation.
"Where the private market can work, that is our absolute preference," said association spokeswoman Julie Rochman.
By contrast, the insurance industry was unified — and successful — after the Sept. 11, 2001, terrorist attacks in pushing for a federal insurance backup for catastrophic losses suffered in a terrorist attack. Last month, Congress extended the law creating the terrorism insurance program for two years.
Allstate, the second-largest U.S. personal insurer behind State Farm, posted a third-quarter loss of $1.55 billion as a result of Katrina and other hurricanes that pounded the Gulf Coast last summer. It was Allstate's biggest quarterly loss as a publicly traded company. It had no reinsurance coverage in place in Louisiana for the Katrina losses.
The company, based in Northbrook, Ill., recently signed new reinsurance agreements for coverage of personal and auto losses from natural disasters, deals that will triple the total cost of its reinsurance to about $600 million a year.
Despite having the new reinsurance, Allstate said Friday that it will not write new homeowners insurance policies in New York City, Long Island and southern Westchester County in New York.
Under the catastrophe fund legislation proposed by Reps. Clay Shaw and Ginny Brown-Waite, both R-Fla., private insurers would be responsible for losses up to amounts determined on a state-by-state or regional basis. State catastrophe funds then would pay additional losses up to their limits before the national fund would kick in. The national fund would sell reinsurance to the state funds.
Most states do not have catastrophe funds, and the national plan would be a way to encourage states to set them up, backers of the legislation say.