Natural Disaster Legislation Takes Center Stage

The scenes are all too familiar: The relentless rain, rushing flood waters and howling winds that accompany a hurricane; the trembling earth and cracked foundations inflicted by an earthquake; or the punishing gale-force winds of a tornado. All inflict unspeakable damage—and all present a serious threat to the stability of the insurance industry. An oft-visited topic, natural disaster legislation is taking center state once again in Washington, D.C. How will the debate unfold in the new Democrat-controlled Congress?

The Senate Banking Committee held a hearing on natural disaster insurance April 11. Chairman Chris Dodd (D-Conn.) said he supports finding a solution to the natural disaster problem and, to that effect, outlined four priorities: establishing a temporary $100 million tax deduction program for low- and middleincome consumers who have experienced drastic premium increases; increasing investment in mitigation; strengthening the NFIP immediately and eliminating its debt; and gathering more information to develop a long-term solution via a Commission on Natural Disaster Insurance.

Ranking Member Richard Shelby (R-Ala.), said that it should be up to the private marketplace to devise a solution and that he opposes government involvement, including any reinsurance or national catastrophe fund. However, he does support creating a commission.

During the committee’s panel discussions, there was no consensus on how to handle the problem. Some, such as Gov. Charlie Crist (R-Fla.), endorsed creating a national catastrophe fund. Others opposed a federal backstop of any kind, saying that it would displace the private market.

In written testimony for the third, industry-focused panel, the Big “I” stressed the need for a national solution to the national problem of natural disaster risk.

“Despite our longstanding position that the insurance market is best served by limited federal involvement, we believe that a federal solution to the issue of natural catastrophe insurance is necessary to help provide capacity and fill a void that the private market cannot and will not service,” the Big “I” wrote in its testimony.

The Big “I” testimony told committee members that it is best to address this issue before another catastrophe in order to maximize private sector capacity.

“The Big ‘I’ believes the best solution is for a program to be in place before the event happens—to have a clear, well-structured mechanism that encourages the private sector to handle as much of the risk as possible, and only trigger federal involvement as a last resort upon private market failure,” the testimony said.

The Big “I” supports any reasonable proposal that will bring coverage to consumers. Among the current bills in circulation:

• H.R. 330, the Homeowners Insurance Availability Act, sponsored by Rep. Ginny Brown-Waite (R-Fla.), which would allow private insurers to purchase, at auction, reinsurance through the U.S. Treasury to cover “one-in-100”-type natural disasters.
• S. 928, the Homeowners Insurance Protection Act of 2005, introduced by Sens. Bill Nelson (D-Fla.) and Mel Martinez (R-Fla.), which would create a federal catastrophe reinsurance program.
• S. 926, the Policyholder Disaster Protection Act, introduced by Sens. Nelson and Martinez, which would allow insurers to create tax-free reserve funds for natural disaster claims.
• S. 292, the Catastrophic Disaster Risk and Insurance Commission Act, introduced by Sens. Nelson and Martinez, which would create a national commission to make recommendations to help the federal government prepare for an manage natural disasters.

Look for this issue to gather steam as we head into the 2007 hurricane season. The Big “I” will continue to monitor its progress and make sure the voice of independent agents is heard.

Jennifer Sikorski (jennifer.sikorski@iiaba.net) is managing editor of IA.

Elsewhere in Congress…

The full Senate Commerce Committee also focused on the insurance industry in April at the hearing “Oversight of the Property-Casualty Insurance Industry,” where state vs. federal regulation was among the topics of discussion.

At the hearing, Mississippi Attorney General Jim Hood testified that state insurance commissioners cannot effectively regulate the industry.

Arkansas Insurance Commissioner Julie Benafield Bowman testified that regulation should remain at the state level and discussed how commissioners make sure insurers remain solvent and serve consumers.

Robert Hunter, the Consumer Federation of America’s director of insurance, said, “an OFC (optional federal charter) would gut the few protections there are [for consumers].” Hunter also recommended that Congress should repeal the insurance industry’s McCarran- Ferguson antitrust exemption, establish clear disclosure for consumers and address salvage title regulation.

The Big “I” will continue to voice its opposition to an optional federal charter and advocate for a more pragmatic approach to reforming the state-based regulatory system.