House Bill Would Create Federal Guarantees for Disaster Insurance Program

Yesterday, the U.S. House of Representatives passed on a vote of 258 to 155 a bill designed to backstop private property insurance in the event of huge natural catastrophes like Hurricane Katrina or the San Diego fires.  Opponents of HR 335 (known as Homeowners' Defense Act of 2007), including the White House, say the legislation would shift business from the private market to the federal government and would unfairly benefit disaster-prone states like Florida and Louisiana at the expense of other states.

Under the program, individual states would enter pooling arrangements to provide reinsurance for private insurers (reinsurance covers part of the insurers' risk in issuing private insurance).  If a catastrophic event results in damages above a certain threshold (measured by disaster costs that exceed 1.5 times the amount of premiums collected from homeowners and businesses in the previous year), the affected state could apply for loans from the federal government.

The bill's sponsor's, Reps. Ron Klein (D-Fla.) and Tim Mahoney (D.Fla), assert that the measure is necessary to reassure private insurers that affordable reinsurance is available and to absorb the costs of the largest natural disasters without the need for post-hoc government bailouts.  The insurance industry is divided over the legislation.  The Big "I" (Independent Insurance Agents and Brokers of America) support the bill; The AIA (American Insurance Association) believes the Act will not create incentives as advertised for private insurance markets.

Sens. Hillary Clinton (D-NY) and Bill Nelson (D-Fla.) have introduced similar legislation in the Senate.  President Bush has indicated he will veto the measure.

For more information on this bill, see NY Times House Approves Creation of a Federal Disaster Insurance Program.