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GAO proposes U.S. role in state catastrophe programs


WASHINGTON—The Government Accountability Office has made four proposals that would increase the U.S. government’s role in state natural catastrophe insurance programs.

In findings released Wednesday, the GAO proposed facilitating the transfer of risk, guaranteeing state pre- and post-event bonds, establishing a federal lending facility for qualified state natural catastrophe insurance programs, and establishing a federal reinsurance program.

The GAO, which began studying the issue last August, looked at states that already have natural catastrophe programs. It also analyzed how the proposed federal changes would affect those state programs and how natural catastrophe insurance and reinsurance is provided in selected countries outside the United States.

The GAO said Florida’s insurance and reinsurance programs have more than $2 trillion in combined exposures, which exceed that of all other state programs combined. It also found major growth in the state programs of Mississippi, Texas and Florida, in which the programs have grown by 495%, 147% and 146%, respectively, since 2005.

When identifying its proposals to increase the federal role in natural catastrophe insurance, the GAO said it found that each would involve trade-offs that would need to be balanced. As an example, the GAO said that while the proposals could lower premium rates and increase public participation in state catastrophe programs, they also could discourage private market participation and mitigation efforts and increase taxpayer exposure to potential costs.

This would occur, the GAO said in its report, as a result of decreased reinsurance purchases by some state programs and increased reliance on post-event funding, which could increase taxpayers’ exposure to the potential costs in the event the state suffers financial hardship.

The GAO also reviewed natural catastrophe insurance programs of several countries that face natural catastrophe threats similar to the United States, including Australia, Canada, France, Germany, Japan, New Zealand and Switzerland. None of the countries had made “any significant changes” to their programs since the GAO last reviewed them in 2008, the office said.

In several of the countries, the national federal government acts as the reinsurer for natural catastrophe risks.

The report, “Natural Catastrophe Insurance Coverage Remains a Challenge for State Programs,” is available at