NU Online News Service, March 10, 4:02 p.m.EST

WASHINGTON–The bill, the Homeowners Defense Act, H.R.2555, was introduced by Rep. Ron Klein, D- Fla. Sen. Bill Nelson,D-Fla., has filed companion legislation in the Senate.

Primarily, the bill would establish a national catastrophe riskconsortium for states to pool risk, creating a new federalreinsurance program for state catastrophe funds.

The bill was strongly supported by James Lee Witt, who testifiedon behalf of ProtectingAmerica.org, of which he is co-chairman.

He testified that "there is an urgent need" for such a programbecause it would be a comprehensive and integrated program that"strengthens America's financial infrastructure [and] improvesmitigation and readiness to prepare and protect our families andcommunities before and during catastrophe."

Also supporting it was Glenn Pomeroy, chief executive officer ofthe California Earthquake Authority.

The hearing was a joint one, held by the Housing and CapitalMarkets Subcommittees of the House Financial ServicesCommittee.

Among its other provisions, the bill would allow the CEA tolower its earthquake insurance rates and policy deductibles.

"We believe that offering a more affordable earthquake insurancepolicy would help more Californians to insure their homes forpotential earthquake damage," Mr. Pomeroy testified.

He added, "By reducing costs, and as a result insuring moreCalifornia homeowners, financial pressures also could be reducedfor the federal government after the next big earthquakestrikes."

But Steve Ellis, testifying on behalf of Taxpayers for CommonSense, called the bill "fundamentally flawed."

He said it would primarily benefit only Florida and Californiabecause a key part of the bill is that it is a federal reinsuranceprogram only for "eligible" state programs. Currently, Mr. Ellissaid, "only Florida and California have programs that would meetthe criteria specified in the legislation."

He added, "The euphemistically named Homeowners' Defense Actwould actually end up putting taxpayers at risk and subsidizingpeople to live in harm's way. Taxpayers across the country would beforced to pay for a narrow bailout that primarily helps the welloff. It doesn't make sense."

In testimony submitted at the hearing, Eli Lehrer, a policyanalyst at the Heartland Institute, Washington, D.C., derided thebill "as a beach house bailout."

Mr. Lehrer said, "There's no other way to describe it. Althoughcloaked in the language of free markets and fairness, thelegislation would be an enormous subsidy for people who choose tolive in dangerous areas."

He added, "If stupid, rich people want to build mansions on sanddunes, they are entitled to do so. But they shouldn't get insurancesubsidies from the taxpayers to do it. And this bill would providethem."

Also in submitted testimony, officials of the Property CasualtyInsurers Association of America (PCI) and the National Associationof Mutual Insurers criticized the bill.

"PCI shares the concerns expressed by taxpayer, environmentaland other groups," said David A. Sampson, PCI president andCEO.

He said the bill "would broadly shift" taxpayer resources fromthe entire country to benefit specific catastrophe-prone areasthrough the proposed federally subsidized bond guarantees and thereinsurance catastrophe fund provisions.

"That approach is costly to all taxpayers and threatens todisplace the private market," he said.

Mr. Sampson explained that, by providing government subsidies toartificially suppress costs for coastal properties, "the bill wouldencourage development in high-risk and environmentally sensitiveareas."

A NAMIC official said in submitted testimony that enactment ofthe bill "could ultimately expose the taxpayers to further risk anddamage reform efforts at the state level."

Kathy Mitchell, a director of federal affairs at NAMIC, said abetter approach is for Congress to enact legislation thatencourages coastal states to adopt and enforce stronger buildingcodes, and to curtail further development of ecologically sensitivecoastal areas.

If that happens, "it can slow the growth in coastal catastropherisk exposure," Ms. Mitchell said.