NAIC Consumer Liaison Committee Washington, D.C., September 22, 2008

1. NAIC Consumer Liaison CommitteeWashington, D.C., September 22, 2008 Amy Bach, United Policyholders Brendan Bridgeland, Center for Insurance Research

2. Private insurance – not government or charitable aid – allows property owners and communities to recover from catastrophes • Hurricanes Ike and Gustav 2008 • Tropical Storm Fay 2008 • NoCal Storms, Jan. 2008 • SoCal wildfires (Witch Creek, Harris, Rice, etc.) Oct. 2007 • Flooding in Ohio, Pennsylvania and New York 2007 • Tornadoes in Kansas, 2007 • Angora Wildfire (So. Lake Tahoe), June 2007 • Esperanza Fire, Oct 2006 • "Sawtooth" Fire, July 2006 • NoCal Storms, 2006 • Hurricanes Katrina and Rita, Aug. 2005 • French Fire, (Redding, CA. ) 2004 • SoCal Wildfires (Cedar, Old Fire, etc.), Oct 2003 • Hail storms/tornadoes in Texas, 2002 • Napa Earthquake, Sept 2000 • Flooding in Sacramento, Dec./Jan. 1997 • Highway 41 Fire (San Luis Obispo), 1994 • Northridge Earthquake, Jan 1994 • Laguna Hills/Malibu Fires, 1993 • Oakland/Berkeley Firestorm, Oct 1991 Regional availability problems, price spikes and increased participation in quasi-public insurance entities always follow

3. Claim-related problems that chronically arise following natural disasters: • Exclusions that trump the policyholder’s reasonable expectation of coverage • Underinsurance • Unreasonable delays: • providing insured with complete copy of current policy • tendering ALE and other funds • in responding to requests for information • Lack of adjuster training, lack of empathy, misinformation and miscommunications re: what’s covered and what’s not • Lowballing, Use of biased experts • Failure to perform a thorough investigation • Finding excuses to deny instead of find coverage • Unreasonable reliance on confusing, ambiguous policy exclusions • Abuse of the appraisal, recorded statement and EUO processes

4. The fundamentals of sound public policy on catastrophe insurance: • A state based and private market based system • Reverse the trend of excluded risks/multiple policies • Multiple policies on one property are cost inefficient • Consumer/adjuster confusion during the claim process • Rebuilding/recovery is slowed or doesn’t happen • Increased paperwork and litigation • Increasing consumer disrespect for the integrity of insurance safety nets

5. Fundamentals, cont’d: • Require insurers to offer all-perils policies. • Control costs through: • Consumer options re: deductibles and reduced coverage limits • Aggressive mitigation • Regulatory oversight of rates, risk classifications and surcharges • Mandated efficiency: CEA example. State law limits their operating expenses to 3% of premium income • Risk appropriate pricing • Reasonable transition period from current mode to all-peril mode

6. Coordinated Mitigation • Among insurers, public safety and construction professionals and property owners. • Mitigation support including incentives/discounts, “how to” support and financial assistance programs for low income property owners

7. Government in the business of insurance: • Citizens Property Ins. Co’s • JUAs/Associations • Pools • The NFIP • The CEA • Fair Plans

8. Flaws in the current system: • Fluctuations in reinsurance costs and availability • Freedom to drop policies en masse creates instability, mechanisms designed to be last resorts suddenly become market share leaders/oversubscribed • Panic-based decision making • States and the Federal Government are in the business of insurance but not oriented to compete • Most residual market mechanisms were designed with input by private insurers to limit their exposure • Catastrophe modeling should be a public function, states can pool resources • Federal Government’s role should be to help last resort state pools/quasi-public insurers to build and access capital and reinsurance as economically as possible • Don’t expand the NFIP until it’s fixed

9. Dec. 2007 Report to the Ranking Member, Committee on Financial Services, House of Representatives by the GAO: • Re: NATIONAL FLOOD INSURANCE PROGRAM -- Greater Transparency and Oversight of Wind and Flood Damage Determinations Are Needed

10. The multiple policy/multiple adjuster regime is unsound • NFIP does not systematically collect and analyze data on wind-related damage when collecting flood claims data on properties subjected to both high winds and flooding, such as those damaged in the aftermath of Hurricanes Katrina and Rita. • Further, NFIP has not sought such information even when the same insurance company serves as both the NFIP WYO insurer and the insurer for wind-related risks. WYO insurers are required to submit flood damage claims data in accordance with NFIP’s Transaction Record Reporting and Processing (TRRP) Plan for inclusion in the NFIP’s claims database. • “In our review of data elements in NFIP’s claims database,we found that NFIP does not require WYO insurers that are responsible for adjusting flood claims to report information on property damages in a manner that could allow NFIP to differentiate how these damages (to the building or its contents) were divided between wind and flooding.”

11. Fighting over who’s on the hook is a no win situation • FEMA cannot be certain whether NFIP has paid only for damage caused by flooding when insurers with a financial interest in apportioning damages between wind and flooding are responsible for making such apportionments.

12. Florida, California, Louisiana… • Florida is in the forefront of creative, pro-active solutions to private market failures and direct involvement in reinsurance • Louisiana is working to depopulate and improve Citizens and contend with reinsurance challenges • California’s solution to a private market failure is the CEA – an experiment:

13. The Massachusetts example: • No major cats have hit the state in years • Yet there’s a serious availability crisis in the homeowners marketplace • Homeowners are going bare, rates are skyrocketing • Consumer confidence in the integrity of the private insurance system is eroding