States should reclaim risk management responsibilities from FEMA, says Guy Carp’s Clark

By Mia MacGregor

April 16 - (The Insurer) - States have ceded their risk management capabilities to the federal government, ultimately shifting the burden on to taxpayers, according to Jonathan Clark, managing director at Guy Carpenter.

Speaking on an investment panel during the ClimateTech Connect conference in Washington, D.C., Clark said, “States, in my opinion, have basically ceded their entire risk management capability to the federal government.”

“They rely completely on debt and post-event financing to protect against problems, and that’s just all falling back on taxpayers.”

He added that “roughly 40% of economic losses aren't being picked up by an insurance solution or insurance product… States who have ceded this responsibility to FEMA need to lean back in and take more action."

Clark said Guy Carpenter has tried to engage with many states, but few have the resources to manage their own risk.

“We've been trying to talk to a lot of them. None of them have budget for risk transfer, or very few of them do. Most of them are not buying nat cat-related exposure. They're just relying on dollars coming from FEMA, and that's got to change.”

He suggested that if states began to take more responsibility, they could also potentially influence constituents to better protect themselves.

“Provided they were to do some of that, and bring more risk management into their ability to then turn around and talk to their constituents about, ‘This is why, on behalf of the state, we’re buying protection for flood, you need to do it as well,' that would be really pretty powerful in terms of bringing more product offering into the market.”

“At which point, I would argue, the insurance and reinsurance community is perfectly suited and geared to increase the capital that they’re allocating to the system.”

However, he noted that without funding at the state level, insurers and reinsurers will continue to deploy capital elsewhere.

“The problem is, right now there are not funds for some of this. And as long as there are not funds, then reinsurers and insurers will deploy their capital differently to just manage their own businesses. So that’s got to happen to unlock change in this area.”