New York regulators are proposing that insurance companies set aside extra money to pay for damage in the event of a significant hurricane, seeking to ease, at least in the state, the soaring premiums faced by millions of Americans along the Atlantic and Gulf Coasts. But insurers have expressed reservations. Under the New York plan, insurers would for the first time be required to use money that now goes directly to profits to create contingency funds to pay for hurricane losses. Then, when a big storm hits, money would already be designated to pay for much of the damage. The financial shock would be eliminated or reduced, the regulators say, and there would be no justification for raising premiums sharply.
The state Senate’s insurance committee is holding a hearing on coastal insurance problems at 10 a.m. today at the western campus of the Suffolk County Community College in Brentwood. Consumer groups and insurance companies have long advocated creating special funds for significant hurricane damage. And the consumer advocates said New York’s proposal could lead to the introduction of similar plans in other hurricane-prone states along the coast.
“Other states may look at this and say, ‘Why don’t we have this sort of requirement,’” said J. Robert Hunter, the director for insurance of the Consumer Federation of America. “If every state had a reserve like this, they could actually work together so that the money could flow to wherever a hurricane struck. This would help stabilize prices and might even lower prices.”
After Hurricane Katrina and other big storms, prices began rising sharply along the coasts from Texas to Massachusetts. To lower their chances of big payouts, the insurers have refused to renew coverage for hundreds of thousands of homeowners and have stopped selling new policies in the areas most threatened by storms.
Responding to appeals from insurers, members of Congress have introduced several bills that would provide for the federal government to pay for much of the damage from a destructive hurricane. Government backing, the insurers argue, would help make insurance more affordable and more widely available.
The insurers have so far been unwilling to put money aside to pay for hurricane damages unless they were able to deduct it from federal taxes as a business expense. Most money set aside for claims receives the tax credit, but because so many variables are involved, claims related to hurricanes and other natural disasters do not. Under the New York plan, which is to be presented to insurers as a draft of a new regulation in the next few days, the insurers would be required to set aside the portion of their annual premiums that is designated to cover hurricane damage. Regulators estimate that to be about $250 million.
New York has no ability to change federal tax law. So the regulation would require the insurers to set aside the money after they had paid taxes on it. They would receive a tax deduction after they paid for hurricane damage. But in the meantime, they could not use the money for other purposes. In Long Island, as much as 25 percent of the annual premium is now designated to pay for hurricane damage, said Eric Dinallo, the superintendent of insurance in New York. If there are no hurricanes, which is usually the case in New York, the companies simply keep the hurricane portion of the premium as profit. With no hurricanes in the country last year, the insurers reported record profits.
Despite dire predictions, this year has also been quiet, and the insurers are headed for another year of high profits. The last significant storm to hit New York was Hurricane Gloria in 1985, at a cost of more than $780 million in today’s dollars. But New York has nearly as much coastal property as Florida, and the insurers say that the recent increase in hurricane activity raises the potential for heavy losses.
As for why the insur
Source: New York Times