Catastrophe Risk and the Regulation of Property Insurance
This paper examines the regulation of property insurance markets affected by catastrophe risk, particularly the risk of tropical storms and hurricanes. The severe storm seasons of 2004-2005 and insurers’ resulting reassessment of hurricane risk and related actions have raised a number of issues and a range of regulatory reactions in various states. In this paper, the author reviews the areas of regulation that are most pertinent to the affected insurance markets and the principles and realities that generally pertain to these areas. This review encompasses an assessment of the regulatory policies in five “target” states – Florida, Texas, Louisiana, South Carolina and New York. Market pressures and regulatory policies vary among these states. Florida faces the greatest risk and pressure and its regulatory policies have attempted to constrain market forces to the greatest extent among the five states. The other states have tended to be more accommodating in terms of allowing market adjustments but there is a possibility that their policies may change. The author offers opinions on how states should regulate property insurance subject to catastrophe risk.