While insurers did an admirable job responding to last year's Hurricane Sandy, they still face regulatory issues that could hamper their ability to respond to similar events in the future, according to Howard Mills, chief advisor in Deloitte's insurance practice.
"I think the story is that it may be a missed opportunity in that we haven't really seen much change," he says. "We have seen some far sighted thinking from the city of New York, but we are still waiting to see other things."
Those other things include Congressional action on CAT reserving laws, which Mills says could help alleviate pressure on taxpayers to send rebuilding funds to storm-stricken areas.
"If you were to allow some modest premium increases and allow the insurance panies to build up cat reserves over time, they would be investing and earning interest on this money and there would be large pools of money to draw on and rebuild communities," he says. "Now, insurers have to come up with P&L and pay out dividends, and they can't charge a premium beyond a certain point."
Mills posits that a better use of federal tax dollars to address storm-related concerns would be in prevention. He notes, "to really make the type of [infrastructure] investment that the city of New York is looking at, it will involve the federal government." But the government, he admits, is busy dealing with other issues like the Affordable Care Act's troubled rollout as well as non-insurance-related legislative issues like a budget impasse that led to a short government shutdown earlier this year.
But the insurance industry needs an injection of certainty to do his job, he implores, noting that the upcoming expiration of the Terrorism Risk Insurance Act isn't making the job of insurers to prepare to address risk any easier.
"At the same time that the industry is impacted by the TRIA, the concentration of risk has increased. More developments have gone up, and the property value as well," he says. "We have seen increased wildfire risk compounded by the risk, and we're seeing more building into areas that weren't really inhabited areas. We're getting into a period where we need to have much better planning in terms of the building codes and types of disaster relief that will be available. The overall economy would benefit from certainty."