Panter proposal would dedicate portion of property insurance
BY LAYLI WHYTE
Staff Writer
With New Jersey at high risk this hurricane season, a bill introduced by Assemblyman Michael Panter (D-12) would create a fund specifically to deal with any damage that could result from a major storm.
The New Jersey Catastrophe Fund would act as reinsurance for insurance companies when the cost of repairing and rebuilding after a catastrophic storm surpasses a monetary threshold of what the insurance companies can afford to pay.
Under the bill, the state would pay $10 million into the fund to start, which is the amount required by the Internal Revenue Service to be considered a public/private partnership, according to Panter.
In addition to being the vice chairman of the Financial and Insurance Committee in the Assembly, Panter is also a member of the Environmental and Solid Waste and the Transportation and Public Works Committees.
He said that the state can, in the future, petition to get that seed money back, after the fund has grown.
“There is a broad consensus among experts that 2006 and the years ahead will bring increasingly strong hurricanes to the eastern seaboard,” said Panter at a press conference held last week at the State House in Trenton. “It’s been over 100 years since New Jersey took a direct hit from a hurricane.”
Panter said that in 1944, the New Jersey coast was devastated when a category three hurricane hit 30 miles off the coast, causing $33 million in damages.
James Lee Witt, head of the Federal Emergency Management Agency (FEMA) during the Clinton administration, is supporting the bill, and said that the damage done by the 1944 hurricane would cost $100 billion in today’s economy.
“There were 1,500 lives lost in [hurricanes] Katrina and Rita,” Witt said at the press conference, “and the most damage took place in the poorest neighborhoods. Because of the losses they incurred, all of the things they tried to do to build their hopes and dreams are gone.
“Federal programs will not replace the things you lose,” he continued. “They will only put a roof over your head and help you start your way back.”
The bill calls for a portion of property insurance already paid by homeowners to be deposited into the fund, where the funds would accrue interest and be tax-free.
“Consumer premiums will not increase as a result of the New Jersey Catastrophe Fund,” according to a press release announcing the fund. “Typically, a homeowner receives a premium bill from their insurance company, in which the cost of reinsurance has already been factored. In the instance of a state catastrophe fund, insurance companies would simply pay into the fund using the reinsurance portion of consumer premiums.”
Reinsurance companies, according to Panter, cover the cost of insurance companies when the losses of the policyholders are more than the reserve fund held by insurance companies.
“Reinsurance companies have been increasing their premiums by 10 or 20 percent every year,” he said.
Panter said that policyholders pay a percentage of their premiums toward reinsurance, and this bill would shift between 5 and 10 percent of their premiums to the fund.
“This will not increase premiums,” he said, “and there will still be a portion of the existing premiums going toward reinsurance companies.”
According to the bill, if insurance companies are required to go to private, often overseas, reinsurance companies to cover the balance of the cost of rebuilding after major storms, the New Jersey economy could be damaged severely.
“Mortgage lenders require reliable property insurance,” the bill states, “and the unavailability of reliable property insurance would therefore make most real estate transactions impossible. In addition, the public health, safety and welfare demand that structures damaged or destroyed in a catastrophe be repaired or reconstructed as soon as possible.”
Panter said that the proposed bill, if signed into law, would help protect New Jersey residents from paying increased reinsurance rates after a catastrophe hits.
According to the press release, New Jersey is at increased risk during the hurricane season of 2006.
“Experts say that potential storm surges on New Jersey’s coast,” the release states, “where hurricanes can deliver a major punch without even making landfall, point to the shore’s vulnerability.”
“In 1944,” Panter said, “New Jersey’s population wasn’t nearly as dense as it is today. If a category one storm hit Asbury Park directly, it would put Newark International Airport under a foot of water.”
The press release states that New Jersey is at higher risk than Florida and other Gulf Coast states this year for major hits from hurricanes, with six hits being predicted for the entire eastern seaboard, three of which are expected to be category three or greater.
It’s been over 100 years since a hurricane made direct landfall in New Jersey, and with increased development of the coast lines, the destruction, according to Panter, could be utterly devastating.
“Monmouth County relies on its tourism,” he said, “but much of the building has just run rampant.”
Panter said that given the density of a place like Monmouth County, evacuation in the case of an emergency would be difficult.
“If you come down Rumson Road or Ridge Road to Sea Bright in the summer,” he said, “you can be stuck in traffic forever.”
Panter said that as the bill is currently worded, municipalities would have to have an evacuation plan in place before they could receive grant money from the fund.
The grant money would come from the tax-free interest the fund earns, but the principal would only be used in the event of an emergency that causes at least $2 billion worth of damage statewide.
“If financial assistance is needed to develop a plan,” said Panter, “even though the bill doesn’t read that way now, it might be something to look into as we move ahead.”
The Monmouth County Board of Chosen Freeholders recently passed a resolution supporting the improvement of coastal evacuation routes, and Harry Conover, coordinator of the county’s Office of Emergency Management (OEM), has said the freeholders are also trying to secure funding from the state for a study that would evaluate these routes.
All routes going west, Conover has advised, are evacuation routes, including Route 36, all of the 500 county roads, like routes 537, 516 and 520, as well as Interstate 95 westbound.
Panter said that he hopes hearings on the bill, which would include testimony from experts, will take place this fall, and that the bill will be passed by year’s end.