Creates the natural disaster reinsurance fund

Title of bill

An act to amend the insurance law, in relation to creating a state natural disaster reinsurance fund

Summary

This bill amends the insurance law by adding a new article 80. The purpose of this bill found in Section 7901 is to create a natural disaster reinsurance fund to be financed through voluntary participation of insurers. The fund will provide subscribing companies with a pool of available funds to be accessed when a catastrophic event raises claims above a given level and will thus reduce the potential for insurance company insolvencies due to natural disasters and other catastrophic events. Section 7902 of this bill provides definitions of "natural disaster" or "catastrophic event" as well as the definition of "fund" pursuant to this article. Section 7903 states that the superintendent will have custody of the natural disaster reinsurance fund.

Also, when necessary the state shall establish and adjust the rates for the reinsurance coverage using generally accepted actuarial principles. The state will hold these fun~s in trust and shall allow them to be absolved only when participating insurers make claims against the fund. Section 7904 provides that participating insurers are eligible to make claims against the fund when a natural disaster, or a series of natural disasters, occurs which results in claims exceeding 15% of the industry's surplus. Section 7905 exempts any amounts deposited into the fund account from taxation by the state or by any county, municipality or local taxing authority. Section 7906 of this bill prohibits participating insurers from increasing any premiums based upon payments made to the fund.

Justification

This legislation would create a fund which insurance companies can tap into in the case of a natural disaster or catastrophic event. Currently, in the instance of a catastrophic event, insurers must bear the expenses incurred upon them by their clients. This bill would prevent insurance company insolvencies should their claims rise above a given level due to natural disasters or catastrophic events. This bill is a preventative measure we must make in case of future crisis in this state. This bill provides protection for consumers from insurance companies raising premiums to cover abundant claims in the event of a natural disaster.

Fiscal implication

To be determined.

Effective date

This act shall take effect January 1, 2010, provided however, that the superintendent of insurance shall promulgate any rules and regulations necessary for the timely implementation of this act on or before its effective date.