Change Sought to Cover Losses Mandatory national insurance for disasters such as hurricanes and earthquakes is getting a serious look. Critics call it a bailout for carriers. By David Streitfeld Times Staff Writer
October 5, 2005
Hurricanes Katrina and Rita exposed such major shortcomings in the nation's insurance system that regulators from several states are drawing up plans for a national catastrophe insurance program.
Its backers argue that without a major overhaul, the current system will once again perform miserably in a big California quake, a major terrorist attack or storms that echo this season's in size and intensity.
Details of the program are to be worked out at a summit in San Francisco next month led by California Insurance Commissioner John Garamendi and his counterparts from New York and Florida. One strong possibility is that the program will be mandatory for all U.S. homeowners in the same way liability insurance is required for car owners.
That would eliminate the biggest problem with current forms of disaster insurance: It's specialized and often expensive, so few buy it. That keeps the premiums high, which keeps it unpopular. When a disaster hits, only a small percentage of people are covered.
With a national program, premiums would vary according to risk areas, with Gulf Coast residents and Californians paying more than, say, Idahoans or Nevadans. The insurance companies would administer the program and, in all likelihood, the federal government would guarantee it.
The proposal, which would have to be approved by Congress, is drawing fire from consumer advocates, who fear it would be nothing more than a massive bailout of the insurance industry.
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