June 21, Department of the Treasury Federal Insurance Office, Room 1319 MT 1500 Pennsylvania Avenue, N.W. Washington, DC 20220

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1 June 21, 2013 Department of the Treasury Federal Insurance Office, Room 1319 MT 1500 Pennsylvania Avenue, N.W. Washington, DC Re: Study on Natural Catastrophes and Insurance Dear Director McRaith: PIA appreciates the opportunity to comment on the state of the market for natural catastrophe insurance in the United States, as well as provide some suggestions as to how we can continue to increase the availability and affordability of property insurance, particularly in catastrophe prone areas. PIA represents independent insurance agents in all 50 states, Puerto Rico and the District of Columbia. Our members are insurance professionals who provide personal support, service, and counsel to their customers and are concerned with the availability and affordability of property insurance. Agents and brokers are licensed, regulated and experienced professionals that educate consumers on complex products and enroll them in policies that best fit their personal needs. Agents and brokers have a deep familiarity with insurance markets and products, they service plans throughout the year, assist with renewals and are held to strict compliance standards. Our members must meet continuing education requirements in order to maintain their licenses. In addition, they are required to maintain continuous professional liability insurance coverage in order to protect consumers. Natural disasters affect every area of the United States. Although hurricane and tornado damage has been at the forefront of the discussion on natural disasters recently, the reality is that severe damage can be caused by a myriad of disasters. This is a nationwide concern, not a regional problem. Whether it's an earthquake, wildfire, windstorm, ice storm, drought, tsunami or any of the other various perils that threaten us, we need a more comprehensive plan for dealing with them. In order to address the problem of decreased capacity for catastrophe insurance, PIA formed a Natural Catastrophe Working Group consisting of agents that specialize in property insurance. PIA continues working with several interested parties to come together to see if we could agree on some basic common sense solutions to help markets prepare for and recover from natural catastrophes. We believe there is consensus around a few main points that have been PIA policy for several years. The PIA National Board unanimously adopted this policy last year (attached).

2 Michael McRaith June 21, 2013 Page 2 PIA is encouraged by the attention this issue is currently receiving in Congress. Our recommendations recognize the need to integrate federal, state and local resources in order to effectively prepare for and recover from natural catastrophes. We were very pleased to see Sen. Bob Menendez (D-N.J.) and Rep. Mario Diaz-Balart (R-Fla.) introduce legislation (S. 905 and H.R. 1878) that would provide states with additional disaster relief funding if they enact modern building codes. We also support legislation like H.R introduced in the last Congress that would provide a tax credit to low-income homeowners who take action to protect their properties and reduce vulnerability to damage from natural disasters. PIA supports a public-private collaborative effort in designing a catastrophe plan which involves participation by states and local governments and emphasizes mitigation. Our members support the ability of insurers to price policies according to risk and to reserve funds dedicated for claims payment in a tax friendly manner. If insurance companies are allowed to charge adequate rates to cover the risks, they will be in a better position to offer premium discounts for risk mitigation efforts. In addition, the National Association of Insurance Commissioners (NAIC) and the National Conference of Insurance Legislators (NCOIL) have been discussing comprehensive national plans for managing natural catastrophes. PIA favors a comprehensive national approach. We are fully supportive of legislation that would enhance mitigation, but not legislation to replace private insurance with government programs. Our members believe that natural catastrophe risk should be placed in the insurance market, not on taxpayers. Government backed insurance entities, like Citizens in Florida, are not adequately capitalized in the event of a loss thereby putting taxpayers at risk of post event assessments to cover the difference. The federal government can play a critical role in helping coordinate efforts among states in matters such as fostering mitigation, but as the primary regulators of insurance, state legislators and regulators will be responsible for implementing most of the measures we recommend to assist with market recovery. Coordination of insurance-related aspects of natural catastrophes among the states should remain the purview of state based organizations like NCOIL and the NAIC. We believe there is no role for the federal government in the insurance aspects of natural catastrophe public policy, and PIA opposes any related federal encroachment into the regulation of the business of insurance. Making property insurance available to consumers is just part of the problem. We see instances where consumers choose not to buy needed protection even if they are exposed to hazards and adequate coverage is available. Consumers are often not fully aware of the threat facing them and education

3 Michael McRaith June 21, 2013 Page 3 efforts can help convince property owners to purchase needed insurance. Other property owners seem convinced that the government will provide assistance to them in the event of a disaster and therefore they may deem some insurance as unnecessary. The government should steer clear of any public policy decisions that may reduce incentives for property owners to purchase insurance. Finally, with respect to flood insurance; there is still no viable private market. Our members looked into private flood insurance when the NFIP lapsed and we found very little coverage available. We support the implementation of Biggert Waters (PL ) and we believe the reforms contained in this legislation will help strengthen the program. We are interested in working on transitioning properties out of the flood program and into the private market but we cannot support eliminating the NFIP when there is no alternative for so many property owners. PIA is working with Congress, states and the private sector insurance industry to support open and stabilized insurance markets in order to foster economic recovery. We will continue to work with interested parties to craft proposals that meet the needs of consumers. We look forward to working with you in this matter. If PIA can be of any assistance, please let me know. Sincerely, Andrew C. Harris, CIC, CPCU, ARM, CRM, AIS President

4 PIA National Board of Directors Annual Meeting of the Board September 23, 2012 Baltimore, MD RESOLUTION: Updated PIA Policy Addressing Catastrophe Preparedness Presented By the Natural Catastrophe Working Group: WHEREAS, natural disasters including wildfires, floods, tornadoes, and hail, among others have threatened the personal and economic well-being of millions of United States citizens; and WHEREAS, the risk of a catastrophic event of national and global consequence may extend beyond these disasters and also include windstorm, earthquake, and seismic activity, and may effect states and communities inland as well as along coastlines; and WHEREAS, Natural disasters, including Hurricanes Katrina, Rita, and Wilma in 2005 demonstrated that the devastation of such a large catastrophe can stretch far beyond where the event occurred; and WHEREAS, the National Association of Professional Insurance Agents (PIA) has longsupported the need for a well coordinated national system of catastrophe preparedness one that would include strong state planning and response; implementation of mitigation efforts such as effective statewide building codes and thoughtful land-use policies; and innovative initiatives designed to increase capacity to insure risk, as needed; and WHEREAS, PIA also supports changing the IRS tax code to allow for insurer tax-deferred catastrophe reserves and establishing an appropriate federal role to support private-market and state initiatives; and WHEREAS, any suitable catastrophe plan must place primary responsibility on the private markets and on the states, while recognizing that some losses may be too large for them to bear; and

5 WHEREAS, state legislatures and Members of Congress, insurance regulators, consumer advocates, insurance industry representatives, and other interested parties are debating the need for, and form of, a national catastrophe plan; and WHEREAS, this ongoing dialogue though informative and productive is not responding quickly enough to the very real threat of a natural disaster of catastrophic proportions; and WHEREAS, PIA believes that further action is needed to stabilize, protect, and preserve insurance markets across the country and, in that way, to directly and significantly impact the lives of consumers; WHEREAS, PIA believes any federal assistance should not subsidize new property development in high risk areas; WHEREAS, PIA supports efforts to help coordinate disaster response between state and federal officials and enhance mitigation by providing tax credits to low-income homeowners who take action to protect their properties to reduce vulnerability to damage from natural disasters. We also support efforts to provide additional post-disaster relief in the aftermath of a severe storm for states with strong statewide building codes. NOW, THEREFORE, BE IT RESOLVED that PIA urges those debating the issue to move swiftly and thoughtfully, and support initiatives that: Utilize building codes: Properties in coastal areas, fault zones and other high-hazard areas, should be built, replaced or repaired according to the most modern building standards and codes reflecting exposure to natural disasters and effective loss-reduction measures. Encourage Safety: Government incentives should promote risk-avoidance and proactive mitigation measures to protect the public from a broad range of natural disasters. Use Nature: Protect ecosystems that provide natural buffers to storms; renewed efforts should be made to preserve coastal areas consistent with effective state and federal laws, using uniform, objective standards. Insure Based On Risk: Private and public property insurance premiums should be established on the basis of risk exposure, including catastrophic risk, subject to state law that risk premiums should be neither excessive or inadequate. This will discourage building in environmentally sensitive areas while placing the risk burden on the private market instead of taxpayers. Assume Responsibility: Responsibility for state insurance and reinsurance programs that pool natural disaster risks should remain with those states which have established programs, rather than shifting the financing to the Federal Government through such means as Federal loans or reinsurance.

6 Utilize Targeted Government Assistance: Programs should focus on people and not insurance by: Extending tax credits, loans and grants for measures designed to protect the property from natural disasters rather than for programs designed to support artificially low insurance rates. Providing means-based assistance, focused on low and fixed income residents not high-income individuals with expensive beachfront or vacation homes. Every state may choose to establish programs which may be eligible to receive federal funds under specified conditions; BE IT ALSO RESOLVED that PIA believes such a coordinated state-federal-private system would result in lower property-casualty insurance rates and would substantially strengthen the solvency of the private sector insurance industry, to the benefit of citizens nationwide; BE IT FINALLY RESOLVED that PIA will distribute this resolution to state and federal legislative leaders, as well as to insurance commissioners and governors around the country, and will continue to work with interested parties to effect much-needed mega-catastrophe reform.