Flood reform, TRIA and EU-US bilateral covered agreement are top RAA priorities: Nutter
One of the top priorities of the Reinsurance Association of America (RAA) over the next 12 months will be working with state regulators to ensure the bilateral covered agreement on insurance and reinsurance between the EU and the US, signed in 2017, is implemented by all states before the five-year deadline is reached.
Frank Nutter, president of the RAA, told APCIA Today that progress has been slow so far. If the agreement is not implemented by all 50 states within five years of the deal, the federal government has the power to step in and force its implementation.
“That would not be ideal, so this is a high priority for us now,” Nutter said.
The states must pass a model law drafted by the National Association of Insurance Commissioners. The law also makes provision for Bermuda, Switzerland and Japan, in recognition of the fact that these jurisdictions are core to the risk transfer markets and have regulatory regimes recognised by the EU.
The signing of the covered agreement marked the final step in more than 20 years of discussions and a year of formal negotiations between the European Commission and the US Department of the Treasury and Office of the Trade Representative.
A second priority for the RAA is to continue to encourage the transfer of risk currently held in the government or states into the private sector. One area Nutter believes progress can be made is on flood risk.
Earlier this year banking regulators, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, took an important step forward by making it clear that banks can accept flood insurance policies from the private insurance market something that would help the private flood insurance market to grow.
Nutter said this was an important step forward for the market and that it removed an “impediment”, but added that other steps that could help this process remain.
One would be the clarity that a homeowner leaving the National Flood Insurance Program (NFIP) could opt to return to using it without losing their status and any incentives they may have had within the programme.
“This would encourage people to test the market, if they know they can return,” Nutter said.
Second, he said, the NFIP is developing a risk rating analytics tool that from 2020 will provide a flood rating for every property in the country whether they are in a flood zone or not. He said this could encourage private companies to work with that assessment to explore areas of the market they might wish to enter.
Finally, the US Federal Emergency Management Agency could, under a proposal the RAA supports, go to the private market and request proposals on how they might work together more.
“They are open to exploring any options that are put on the table,” Nutter said. “It could mean a number of ways of working together or slicing the risk; we are optimistic some good ideas will be developed.”
He said the RAA is keen to see certainty around the future of the NFIP. It has been extended on a short-term basis around 10 times and is due to expire again on November 21.
“Our goal is to achieve a permanent extension of the flood programme we think five years would be reasonable and to find ways for the private market to take on more flood risk,” he said.
Also on his agenda is the extension of the renewal of the Terrorism Risk Insurance Act (TRIA), which expires at the end of 2020. A Congress hearing on that was held the week before APCIA, which Nutter welcomed.
“The insurance community favours the straight reauthorisation of TRIA. In needs to be done soon so there is no uncertainty over insurance contracts written next year; otherwise, clauses will need to be inserted in case of its expiration.
“There is a consensus in the industry and the issue is getting visibility. We are optimistic it will be reauthorised,” he concluded.
