The Hartford, a Fortune 100 company, is one of the nation's largest diversified financial services companies, with 2007 revenues of $25.9 billion. The Hartford is a leading provider of investment products, life insurance and group benefits; automobile and homeowners products; and business property and casualty insurance. International operations are located in Japan, the United Kingdom, Canada, Brazil and Ireland. The Hartford's Internet address is www.thehartford.com.
The Hartford recently launched the Coastal Catastrophe Partnership, which will safeguard economic stability; protect coastal homeowners from financial devastation without disproportionately burdening homeowners who do not live in high risk areas; and support working families and retirees so that they will not be unduly burdened by the cost of insurance.
A Looming Crisis
- The threat is higher: Due to climate change and other weather patterns, scientists indicate that were are in a period of increased hurricane activity and intensity.
- The risk is greater: Spurred on by misguided and short-sighted public policies, coastal development has grown at an unprecedented rate. Now, nearly one of every two Americans lives within 50 miles of our shores.
- Consumers are more exposed: Access to affordable homeowners insurance in high risk areas is diminishing as insurers decide to limit their exposure in the higher-threat, higher-risk environment.
- The market is flawed: Insurers have been limited in their ability to price homeowners insurance policies based on risk, leading to inaccurate assessments of the actual risks faced by homeowners living in coastal areas.
- The system isn’t working: Public and private groups are not working effectively together to identify creative new solutions.
An honest national conversation about the threat a major disaster poses and the burden we all must bear is long overdue. The realities of natural catastrophes should concern all Americans – regardless of where they live – because the losses are felt by everyone. We can no longer afford to believe that this is a political problem relegated to a few regions. It’s time for both the public and private sectors to take responsibility for promoting policies and practices that have resulted in the overdevelopment of vulnerable areas.
Moving forward, we have to face some hard realities: state and federal policies can no longer encourage overdevelopment in high risk areas, despite potential political fallout from that decision; insurers have to recognize that many people who already live in these areas just can’t afford to pay significantly more than they do now; and homeowners have to accept that the cost of living in hurricane prone areas is going to increase as the risk and exposure increases.
National Solution
A solution will require a candid discussion among elected officials, the insurance industry and the American people about the looming threat of natural disasters.
This plan will only work if every stakeholder plays an active role
- Homeowners: In high risk areas, homeowners can reduce losses from catastrophe by preparing now. This means building homes that can stand up to extreme weather and retrofitting existing homes for the future. Everyone saves when homeowners are prepared, so states and insurers should provide incentives for homeowners to take these precautions early.
- States: States can play an important role in loss prevention and the maintenance of a healthy private insurance industry by: addressing coastal buildup through sensible land use planning and enforced building codes; expanding participation in the private insurance market through regulation of the insurance industry; allowing the cost of insurance to reflect actual risk to promote disciplined business practices and support a sound market; regulating state-sponsored alternative insurance providers to ensure that they remain insurers of last resort and not a burden to taxpayers; encouraging lawmakers and courts to reaffirm the legitimacy of policy language and contractual integrity; and assisting working families and retirees who are still unduly burdened by the cost of insurance.
- Private insurers: A healthy, competitive marketplace that meets consumer needs requires private insurers, but it requires compliance by private insurers with regulation of policy pricing and capital requirements; and rewards for homeowners who take responsible loss prevention measures.
- Federal lawmakers: And finally, preparation at the federal level will ensure that states, insurers and homeowners are protected. This means creating a federal backstop for extreme catastrophic events that would relieve state and local sectors of absorbing a growing risk beyond their means. It would also mitigate substantive tail-risk for private insurers that would be associated with an extreme event.
In the end, we believe homeowners will be best served by an active private insurance market with different companies competing for their business. Creating a healthy, competitive market is the ultimate goal of this plan.