The U.S. Government Accountability Office recently reported to Rep. Bachus, the ranking majority member of the House Financial Services Committee, of its findings pertaining to various proposals meant to address increasingly difficult insurance coverage issues arising from natural catastrophes. The GAO’s report analyzes various legislative proposals that generally increase federal involvement in insurance coverage for natural catastrophes, through the lens of furthering the public policy goals of (1) charging premium rates that reflect the risk of loss, (2) encouraging broad participation, (3) encouraging the private market to provide natural catastrophe insurance, and (4) limiting costs to U.S. taxpayers. The report identifies the trade-offs that would need to be balanced in legislative assessment of the proposals, such as the trade-off of, on the one hand, increased federal subsidies that would cause premium rates to inadequately reflect the risk of loss, thereby increasing public participation, but, on the other hand, discouraging private marketplace participation and decreasing pre- and post-event mitigation efforts, and encouraging unwise development in high risk areas. The report discusses the roles of and impact on the reinsurance and capital markets in dealing with the risk of natural catastrophe, mentioning that reinsurance issues were also covered in a prior report issued by the GAO in November 2007. It also includes a summary of the GAO’s briefing of the minority staff, and the resultant revisions to the final report.
This post written by John Pitblado.