I’ve been reading about Rep. Gene Taylor’s proposed legislation to put the federal government in the business of insuring wind coverage, in addition to floods. The latest piece I’ve seen is this story from A.M. Best quoting from a snarky e-mail that Taylor’s policy director, Brian Martin, sent to an insurance lobbying organization about its opposition to the bill. I’m not entirely sure folks without a subscription to A.M. Best will be able to access this link, so I’ll provide a few paragraphs below:
In the lobbying world, it’s a routine tactic: If you don’t like a bill, hire a well-known firm to produce a study critical of its impact, and then widely release the study in the hopes it will bolster your case against the legislation. To reporters, Hill staffers, legislators, and even the lobbyists themselves, the reports are tacitly understood to be part of the political theatrics.
Yet a Towers Perrin study of a flood insurance bill, one commissioned by the American Insurance Association, has provoked an unusual amount of irritation from the office of Rep. Gene Taylor, D-Miss., the sponsor of H.R. 920, the multiperil insurance bill that would add wind coverage to the National Flood Insurance Program.
Taylor’s policy director, Brian Martin, shot off a sharply worded e-mail to Melissa W. Shelk, an vice president of federal affairs with the American Insurance Association, saying he is "embarrassed for Towers Perrin and for (AIA President and former Montana) Gov. (Marc) Racicot that they would put their names on such a ridiculous report."
"Wow. You really cooked the books on that one," Martin wrote to Shelk. "Are there no professional standards in the actuarial industry?"
The Towers Perrin report, which the AIA sent out the afternoon of July 11, says that, "in some scenarios," adding windstorm coverage to the NFIP could cost taxpayers "$100 to $200 billion, or potentially even higher" amounts. The report comes as the House Financial Services Committee’s housing subcommittee prepares to look at Taylor’s bill on July 17.
The report projects what would happen if the flood insurance program insured 100% of the wind market with a 20% discount in premiums, or captured the riskiest 20% of the market without charging higher premiums in those areas than they would in low-risk areas. "Neither of those scenarios is even possible under the bill, much less likely," Martin wrote. "Why not ask for an honest assessment of the bill?"
"What we are proposing is not radical," Martin concluded in his e-mail to the AIA. "Your members already are dropping millions of policyholders and enrolling them in state wind pools and other state-sponsored residual markets. It really is not rocket science to add wind coverage to flood coverage in hurricane risk areas in a fiscally responsible manner."
In an interview with BestWire, Martin was even more blunt. "Nobody is going to believe this" report, he said, adding that it was "a junk study" and "absurd."
With an ability to shoot from the hip like that, Martin obviously has a future standing by the side of Florida Gov. Charlie Crist, should he choose to accept this destiny.
Is the Towers Perrin study cooked? Here it is, it’s short and you can read it for yourself. I’ve read it but I don’t pretend to have crunched the numbers myself, and I accept that these type of things often present a tremendously costly worst-case that obscures all the more likely, less costly possibilities. Why, we all know something like that is completely improbable and not going to happen and just a totally outlandish scare tactic and . . . well, hang on a minute, wasn’t there this deal called Hurricane Katrina? That also was improbable — before it happened — but Katrina knocked the National Flood Insurance Program flat on its keister and put it in debt to the Treasury for $20 billion, which regrettably the NFIP cannot repay because it is not actuarially sound. Just as bad, the NFIP is subsidized to the extent it cannot build up adequate capital reserves to cover major catastrophe losses.
Should people not be concerned this wind coverage program will be run similarly, taking its proud place with the NFIP in the pantheon of national embarrassments? And of course, while we know all insurance lobbyists and their gunslinger consultants constantly lie through their teeth about everything including the color of their eyes, politicians and their staffs hold themselves to the highest standards of intellectual consistency, honesty and integrity, as well as courtesy, and would sooner accept bribe money and put it in their freezers or patronize professional sex workers than twist or distort facts for political or personal advantage, much less gratuitously insult or attack people who disagree, right?
I’m still considering it, but Taylor’s bill doesn’t necessarily strike me as wrong or crazy: after all, aren’t federal disaster payments already a huge subsidy? Even if this program operates as a subsidy of low-risk property owners for high risk property owners, would that be any less costly than the current state of affairs? Perhaps it would, perhaps it wouldn’t. I’m open to the evidence.