CATASTROPHE FUND WILL BE DISCUSSED IN MASSACHUSETTS

The Massachusetts Financial Services Committee is to hold a hearing on possible solutions to the state’s growing coastal home insurance crisis, with a proposed catastrophic event fund high on the agenda. A special commission on homeowner insurance ended a four-month study with a majority recommendation in favour of a cat fund, which would be modelled on the cat fund now in existence in Florida. The tax-exempt fund would be raised by the state and by private insurers in co-operation and would, in theory, reach more than $5bn within 10 years. The commission also recommended that the legislature create an independent public entity to study the accuracy of storm models. Recent analysis by the three catastrophe risk modellers were a factor in the increase in homeowner insurance rates on the Massachusetts coast, after it was concluded that any catastrophic event was likely to be significantly more expensive than had previously been estimated. Commission co-chairman Ronald Mariano said that “what we found out is no-one is checking these models to make sure the stuff in there is realistic and relevant to the area of the country you are in”. Other commission members called for a state storm model, which could be used to assess rate requests from insurers. Representative Mariano said that it would cost between $5m and $7m to create a state storm modeller, with no guarantee that this would lower reinsurance costs. He added that he thought a cat fund had solid chances of success. “I think in concept it has a little bit of a better chance of succeeding here than in Florida because of the infrequency of the Category 3 storms [in Massachusetts]”.