THE BALKANIZATION OF CAT PROPERTY INSURANCE: FINANCING AND FRAGMENTATION IN STORM RISKS

Author: 

Donald T. Hornstein

After a catastrophic weather event (“CAT”), such as a hurricane, there inevitably arise disputes over the cause of property damage, with losses attributable to flooding assigned to policies issued under the National Flood Insurance Program, and losses attributable to wind assigned to policies issued by private insurers and/or by various state-based residual risk pools. Despite the fact that this “wind versus water” allocation has been occurring for almost half a century, it is still used as a symbol of arbitrariness and dysfunction in society’s ability to deploy insurance in situations where it is most needed. Often, it is the point of contrast between the fragmented American approach to CAT property losses and more unified approaches found in the “code des assurances” in France (mandatory disaster coverage), coverage for bundled natural-disaster losses adopted in Belgium between 2003-2005, and the California approach to earthquake coverage adopted in 1994 in the aftermath of the Northridge earthquake. View More