First Travelers had its “four pillars,” and now The Hartford has its “six core principles” – both are sweeping master plans, released in the past month, on how to solve the problems plaguing coastal homeowners and the insurance industry.

The Hartford made news last week when it unveiled a plan creating a federal “backstop” fund for monster storms. The plan would also set up IRA-like savings vehicles for coastal homeowners in case of catastrophic loss and create state-sponsored subsidies for lower- and middle-income families.

But among The Hartford’s bulleted points were a couple reminders that are a common refrain among those in the insurance industry:

First, rampant buildup of the coasts should be addressed by smarter building codes and land use planning.

Second, the private market won’t grow unless companies are allowed to write insurance based on the risk. In other words: If you live on the coast, rates are going to be higher be-cause the risks are just greater.

The Travelers plan also presses for some of the same elements, such as encouraging building codes nationally to follow Florida’s lead by securing structures against possible heavy storm damage, said Eric Nelson, vice president of risk management with Travelers.

But in contrast, Travelers heavily promotes creating four coastal zones where the federal government would regulate insurance rates. Putting coastal states together helps pool risk, according to the Travelers’ release, and reduces reliance on state-run FAIR plans.

Fixing a Hole

The two companies join Allstate, State Farm and Nationwide Mutual Insurance Company in putting forth ideas for fixing the problem.
Robert Paiano, a senior vice president with The Hartford, said the company worked with a number of trade groups, businesses and lawmakers to come up with its plan, which it worked on for “the better part of a year.”

“The proposal is predicated on a vibrant and expanding private market,” he said. “We feel it’s critical to a long-term solution.”

The Hartford differs from other plans out there in that it more heavily includes state regulators in dealing with the problem, Paiano said. Travelers puts the questions of how to deal with a major Katrina-style disaster more squarely on a federal level.

Still, Paiano said the plans’ common elements may create a basis for a single solution to emerge.

While Travelers and The Hartford’s plans don’t differ wildly from each other, they do focus on slightly differing elements: Nelson points out that the Travelers’ plan addresses transparency in rate-setting.

Companies rely heavily on catastrophe models to come up with their rates, he said; in the Travelers’ plan, if over time those models’ calculations appear to have overestimated the risks and driven up the costs unfairly, the rates should be adjusted and consumers’ prices eased.

Nelson said Travelers and other companies plan to be involved in federal efforts to legislate on the problem.

“We stand ready to assist policymakers,” he said.