Incentives for sound insurance

Of all the issues that are crucial to the recovery of greater New Orleans, two underpin the rest: sound levees and affordable insurance.

Without confidence in the security of the region’s flood protection system, residents and businesses will be unlikely to rebuild. Without the ability to buy storm coverage at an affordable price, they won’t be able to rebuild.

The news that St. Paul Travelers Cos. Inc., the largest commercial carrier in the state, plans to cancel virtually all commercial property policies in greater New Orleans next year is the worst development in a series of bad developments this year. The reason, the company says, is that it is not confident in the levee system.

State officials are scrambling to assure other commercial carriers that post-Katrina improvements to floodwalls and levees offer a measure of security that did not exist before the storm. They also are bracing for Louisiana Citizens Property Insurance Corp., the state-sponsored insurer of last resort, to take up much of the slack.

This is a precarious place to be: hoping that other insurers will stay put and that Citizens can handle a surge in policies it has little experience handling. The program is already deep in debt and overwhelmed with individual homeowner policies.

The situation cries out for a broader solution. So far, the conversation nationally has focused on federally backed catastrophic insurance. Even the insurance industry is split on the issue, though.

Federal tax incentives for insurers who agree to write new policies in disaster zones — whether it is after a hurricane, earthquake or some other catastrophe — could be a quicker, less complicated and less expensive solution.

Such incentives could be similar to the Gulf Opportunity Zone Act of 2005, which provided tax incentives to companies that invest in communities damaged by hurricanes Katrina and Rita. The Go Zone incentives are available for a finite period of time to encourage immediate investment in the region.

Tax credits could work in a similar way for insurance companies that might otherwise be uneasy about a market in the immediate aftermath of a storm.

Louisiana is hardly the first and won’t be the last state to experience this sort of insurance squeeze after a catastrophe. After Hurricane Andrew, after the Northridge earthquake, after Hurricane Ivan and the back-to-back-to-back hurricanes that pummelled Florida in recent years, the insurance market went haywire, rates skyrocketed and coverage shrank. Over time, the market tends to settle down.

After all, there is money to be made by insurers along the Gulf Coast, the eastern seaboard and on the fault lines in California. Millions of Americans live with the threat of some sort of natural disaster. Private insurers will cut out a huge potential market if they write off all of those people as bad risks.

Tax incentives could be structured to bridge the gap between a disaster and the eventual correction of the marketplace. President Bush and Congress should go back to the Go Zone formula.

And, for the sake of Louisiana’s recovery, they need to be quick about it.

From the New Orleans Times Picayune

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