Earthquake relaunches debate over disaster re-insurance

29th August 2011   ·   0 Comments

By Christopher Tidmore
The Louisiana Weekly

Compared to a California quake, it was minor. Yet, to millions of Americans from Georgia to Canada, Tuesday’s earthquake caused a huge property and emotional impact — an impact that could reopen the debate over Federal Re-Insurance for Natural Disasters, a long-sought goal of Louisiana Congressmen and Senators.

While the Virginia-based quake caused no reported deaths or major injuries, millions of workers evacuated buildings or were sent home early, sparking titanic traffic jams hours before the usual commutes. The National Cathedral in Washington DC lost masonry on three of its four Gothic towers. The National Park Service used a helicopter to look for potential damage to the 555-foot tall Washington Monument, amidst claims that the edifice developed a lean reminiscent of Pisa.

The earthquake, which hit at 1:51 p.m. ET, measured 5.8 according to the U.S. Geological Survey. The size of the quake, said Brown University seismologist Karen Fischer in a seismic understatement, was “very unusual” for the East Coast.

(Curiously, as employees of the U.S. Capitol, and House and Senate office buildings, admitted that they received the official evacuation notice on their Blackberries an hour and a half after the quake, long after they had fled the building on their own. Most members of Congress were back in their home districts for the August recess and were not present at the Capitol on Tuesday.)

Besides the howls of animals at the National Zoo, who sensed the quake before it happened, many of the same East Coast members of Congress, particularly Virginians on the GOP side, began to hear from conservative constituents that their previous opposition to federal reinsurance may not have been the best of ideas. The fact that Hurricane Irene tore down the East Coast just days later seemed to emphasize the case.

Fears are growing in the Mid-Atlantic states that property insurance rates could rise in the wake of the quake and the storm. It is not a generally known fact, but seismologists have long warned that fault lines on the East Coast could awaken. Where potential for disaster looms, underwriters usually follow with higher property premiums.

That anxiety could prove good news for Louisiana insurance rates, at least if East Coast Congressmen are willing to act on a proposal first made by former Democratic U.S. Rep. Charlie Melancon—and now championed by Louisiana Senator Mary Landrieu.

“What I proposed,” Melancon explained to The Louisiana Weekly, “was the current reinsurance fund for terrorism that was established after 9/11 be extended to cover all natural disasters. Not just hurricanes, but earthquakes as well.”

Melançon banked on the idea that West Coast Congresspersons, from Democrats like San Francisco’s Nancy Pelosi to Republicans like Central California’s Dan Lungren, would help Gulf Coast Congress­men pass a federal guarantee to insurance underwriters.

When the reader buys insurance for their home or business, from say, State Farm, it may appear as if that insurance company has assumed all of the risk. It is quite the opposite. State Farm maintains risk up to certain level, to a billion or as much as five billion. Then, it seeks insurance for the amount above that sum — usually from companies such as Lloyds of London. However, what happens if the market for reinsurance becomes highly ex­pensive, or ceases to exist, out of fear of multiple claims?

Insurance costs skyrocket. That result occurred on the Gulf Coast after Hurricanes Katrina, Rita, and Gustav, but did not happen in New York after 9/11. The reason: The federal government guaranteed that it would become the reinsurer for all terrorism coverage. Melancon and now Landrieu wanted that guarantee extended to Hurricane and Earthquake underwriting.

One of the people who stopped the extension of that guarantee was a northern Virginia Congressman named Tom Davis, whose district was near the epicenter of the quake and endured the feeder-bands of the Hurricane this weekend. There seemed to be little price to pay for Davis and his GOP colleagues in opposing the legislation previously, but now could that attitude change as insurance costs threaten to rise?

This article originally published in the August 29, 2011 print edition of The Louisiana Weekly newspaper.