Alabama looking into coastal windstorm insurance and catastrophe bonds

by Artemis on January 18, 2012

Alabama is one of the U.S. states which sits on the Gulf Coast and as a result is exposed to significant hurricane risk. Discussions are underway in the state as legislators and groups such as the Affordable Homeowners Insurance Commission, which is a panel set up by the state governor to address the problem of homeowners insurance availability on the coast, look to find ways to make insurance more readily available and affordable to catastrophe prone coastal regions.

In a meeting held this week the panel and legislators proposed to create an insurance authority for a coastal county of Alabama which would help to cover windstorm deductibles for homeowners. Legislators are hoping that if the authority could be created through a bill it would be funded by distribution of some of oil giant BP’s fines from the Deepwater Horizon oil spill.

Interestingly catastrophe bonds were discussed and the proposal offered by probate judge Tim Russell, who chairs the Commission, is that the authority would have the power to issue cat bonds to cover catastrophic hurricane events. This would serve as some of the reinsurance that the authority would require.

It will be interesting to see if such a localised, possibly focused on a single coastal Alabama county, insurance authority receives approval. It would be even more interesting if the authority used a cat bond as part of its risk transfer provisions.

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