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Disaster insurance should be affordable

Natural disasters can strike in any place and at any time. In the wake of the most destructive hurricane season in nearly a century, insurance and disaster education experts met with Realtors last week at the National Association of Realtors 2006 midyear legislative meetings and trade expo to discuss the impact of natural disaster insurance and current conditions on the real estate industry.

Although public attention was recently focused on the 100th anniversary of the 1906 San Francisco earthquake, it might surprise many people to know that the strongest earthquake ever to shake the continental United States was not in California but in Missouri. Earthquakes along the New Madrid fault system in the Mississippi River Valley in 1811 and 1812 rang church bells in Boston, disturbed cobblestones in Charleston and changed the course of the Mississippi River.

"Natural disasters like hurricanes and earthquakes destroy communities, not only with their forces of nature but also with the altered insurance landscape that results in their wake," said Lawrence Yun, a senior economist with the association. "When people in high-risk areas cannot obtain or retain homeowners insurance, which is necessary for a mortgage, it can slow redevelopment, depress the local housing market and prevent residents from buying and owning homes. As America's leading advocate for homeownership, NAR urges Congress to make natural disaster insurance affordable and available for homeowners and reduce the circumstances under which insurance companies cancel natural disaster policies."

Yun was one of three presenters at the session, "Natural Disaster Insurance--Is It Time for Congress to Act?" He was joined by L. James Valverde Jr., director of economics and risk management with the Insurance Information Institute, and Adm. James Loy, national co-chair of ProtectingAmercia.org, a disaster education coalition.

Yun discussed the impact of natural disasters on the housing market and noted the insurance industry took an unprecedented hit in the 2004 and 2005 hurricane seasons. Valverde concurred, explaining hat eight of the nine most expensive natural disasters in U.S. history have occurred within the past four years. In addition, Valverde said 2005 will be the worst year ever for insured catastrophe losses in the U.S., at more than twice the costs of 2004.

"Insurance plays an important role in minimizing loss and expediting recovery after natural disasters," Valverde said. "What is needed is an earnest attempt on the part of the public and private spheres to look for areas where government can facilitate market-enhancing opportunities and more efficient private-sector coordination."

Loy challenged some common misperceptions about the risks Americans face from environmental calamities. "Fifty-seven percent of the American public lives in areas prone to natural disasters," he said. "Hurricanes don't just hit the Gulf states; in the past 100 years, 11 hurricanes have hit New England, and six have made landfall on Long Island. Policymakers must act now to make sure America is better prepared."

Several natural disaster insurance bills have been introduced in Congress. HR4366, the Homeowners Insurance Protection Act of 2005, would establish a federal program to provide reinsurance for state natural catastrophe insurance programs, encourage mitigation and prevention for and recovery from catastrophes and better assist in the financial recovery from such catastrophes. HR2668, the Policyholder Disaster Protection Act, would allow insurance companies to create reserve funds from pretax dollars to pay claims arising from future major natural disasters, helping protect insurance companies from devastating claims and allowing them to continue to provide insurance in devastated areas.

"Realtors work to build communities, and NAR supports legislation that will help people rebuild their homes and their lives," Yun said. "Just as federal terrorism insurance helped private insurers enter the market after 9-11, federal natural disaster insurance will help insurers provide homeowners insurance in disaster-prone areas and support the rebuilding of communities in those regions."

Information provided in this column is presented by the Realtor members of the Silicon Valley Association of Realtors at www.silvar.org. Send questions on any topic to pcardus@silvar.org.