Dear Friends

I am pleased to invite you to join us in working with Congress, state and local officials, and other insurance industry leaders on a comprehensive set of principles, called the “Four Pillars” Coastal Hurricane Wind Zone Plan, which would be enacted through legislation to address the crisis of availability and affordability of coastal wind storm coverage. Together we can provide the needed framework to assist America’s coastal families prepare to rebuild, repair and recover from the aftermath of named storm catastrophes.

As one of the largest independent agent insurance companies, we understand that your livelihood depends on having products to sell that your customers can afford. Travelers is committed to finding a private market solution that serves agents by providing stability that fosters a strong and vibrant marketplace for selling coastal insurance.

Even if you’re not serving customers in coastal areas, this is an important issue for you. Your policyholders living in communities unaffected by hurricane risk should not be subsidizing coastal homeowners, whether through higher premiums or tax dollars.

Today Travelers, along with other industry leaders, sent a letter to key members of Congress supporting a comprehensive, private market approach to address the coastal wind storm coverage crisis. The proposal incorporates “Four Pillars” that, taken together, focus on facilitating the availability and affordability of private insurance for hurricane/tropical storm wind coverage through the private market.


The “Four Pillars” principles include:


A stable and consistent regulatory environment. Since hurricanes do not recognize state borders, we believe a uniform set of rules for insurers should apply with respect to named storm wind coverage for coastal zones from Texas to Maine, allowing insurers to spread the cost of risk effectively among as many people as possible who are subject to the same risk. Clearly policyholders not facing the same risk in other states should not be charged for the coastal risk. Often underestimated is the impact of constantly changing rules on the willingness of insurers to commit capital in high risk coastal markets. A more stable set of rules would encourage insurers to make long-term commitments of capital to those areas for wind risks, increasing the availability of insurance at efficient prices over time. An independent federal body would be charged with establishing standards and rules and overseeing this narrow portion of the homeowners’ insurance market. The remainder of the homeowners policy and all other forms of insurance coverage would continue to be subject to state regulation.


Transparency in calculation of premium. Insurance companies would individually and competitively set risk-based and actuarially sound rates using approved standards and certified windstorm risk models. This would ensure that rates are set with transparency. In addition, we endorse creating a rating calculation mechanism to generate premium credits to customers if models and actual experience become misaligned over time and to eliminate the perception that insurers are “winning” and customers are “losing.”


Cost-based federal reinsurance mechanism with savings passed on to consumers. To improve affordability and availability of insurance, we envision the creation of a cost-based reinsurance mechanism for extreme events, such as an event with losses multiples of those arising out of Hurricane Katrina. In order to provide financial protection for the unlikely, yet possible, occurrence of multiple events within one year, reinsurance coverage should be applied on a seasonal aggregate basis. The reinsurance would be made available to insurers at cost so there would be no subsidy and insurers would be obligated to pass the savings directly to their customers.


Mitigation against losses. Mitigation must be a centerpiece of any effective catastrophe insurance proposal, and we strongly support federal guidelines for strong building codes, incentives for state and local adoption and enforcement of those codes, enhanced construction technology, and land use planning requirements. In addition, there should be meaningful premium credits for mitigation and consideration of state and local property tax incentives for retrofitting houses.
We have held extensive discussions with government and industry leaders, including national agent organizations, and appreciate the wide range of participants who recognize this as the best available solution to a challenging market problem. At this time supporters include Nationwide Insurance Companies, the Independent Insurance Agents & Brokers of America (Big I), and The Council of Insurance Agents and Brokers.

For more information or to provide feedback, please contact your Travelers regional vice president or visit http://www.coastalplan.com/. Thank you for your consideration and support of this plan.


Sincerely,

Jay S. Fishman
Chairman & Chief Executive Officer


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