June 21, 2006 by Canadian Underwriter
Five years after 9-11 and nearly a year after Hurricane Katrina most of the United States remains unprepared to deal with a major disaster, according to the U.S. Department of Homeland Security (DHS).
U.S. insurers appear to be looking at ways to use such information in the future to aid their rate-setting and risk management efforts.
A DHS report examined nearly 2,800 emergency operations plans in all 56 states and territories and 75 cities over a six-month period, A.M. Best has reported. The DHS report concludes that only 10 states had “sufficient” disaster plans, on a scale ranging from “sufficient” to “partially sufficient” to “not sufficient.”
“While most areas of the country are well-prepared to handle standard disaster situations, the National Plan Review findings demonstrate the need for all levels of government across the country to improve emergency operations plans for catastrophic events such as a major terrorist attack or Category 5 hurricane strike,” the DHS said in a release accompanying the report’s publication.
The report’s publication will probably have little immediate effect on insurers and how they set rates, A.M. Best says. But such information could be used in the future, according to Dr. James Valverde, director of economics and risk management for the Insurance Information Institute.
“Whether this will have an effect on rate-making is a good question,” Valverde told A.M. Best. “Right now, there’s no way to factor those kinds of considerations into the rate-making process.
“That’s not to say [insurers] might not find clever ways of writing this into their rate-making processes in the future”
As far as natural catastrophes are concerned, insurers typically know more about risk than anyone else, A.M. Best notes. But in the case of terrorism, the federal government knows more about the likelihood of an event than the insurance industry.
“In the case of terrorism, that [government] information is the single most important factor in determining the risk,” Valverde said.