A catastrophic risk study could find ways to increase the insurance industry's capacity to do business in Tornado Alley, state Insurance Commissioner John Doak said.
The spate of earthquakes the past couple of years makes it even more important that Oklahoma follow California and Alabama's lead with such research, he said.
Doak said the Insurance Department could take the lead in a multiagency project or conduct a study
“California's study led to the creation of the California Earthquake Authority and the Alabama study resulted in the implementation of the Alabama Insurance Underwriting Association, which help to provide catastrophe-related insurance products. The study would look at the perils that are specific to Oklahoma, such as tornadoes, wind storms, ice and freezing rain,” Doak said.
But earthquakes, and insurance companies' willingness and ability to cover them, were on the table when Doak mentioned a study. He said the increase in temblors the past few years — including one felt in the Oklahoma City area on Jan 14, 2010, and another, more powerful one Oct. 13, “almost begs the bigger question.”
Earthquakes are a “concern” here, Doak said, because of numerous faults running through Oklahoma. Earthquakes actually are common in the state, with most activity historically centered at Meers, according to the U.S. Geological Survey — but most can't be felt.
“We don't have the tall building exposure” that heavily urbanized areas have, he said, “but we have a lot of rural home exposure.”
Oklahoma Farm Bureau Insurance's exit from the earthquake insurance business was a business decision in a difficult insurance marketplace, Doak said. Farm Bureau sold the coverage as riders to standard property and casualty policies. Doak said earthquake coverage is expensive and difficult to find if not sold as a rider to a standard policy.
An example of the kind of research Doak was talking about is a 2005 study by the U.S. Government Accountability Office that studied U.S. and European approaches to providing insurance coverage for natural catastrophes and terrorist attacks.
Among other things, the report analyzed the potential of catastrophe bonds — securities that would be sold by insurers and reinsurers and sold to institutional investors — and tax-deductible reserves to strengthen private-sector insurance capacity.
The industry wasn't then ready for the widespread use of catastrophe bonds, according to the National Association of Mutual Insurance