New Bill In Congress To Spur Catastrophe Insurance

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By Arthur D. Postal , Washington Bureau Chief

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NU Online News Service, Feb. 18, 12:45 a.m. EST,Washington?Legislation designed to encourage insurancecarriers to write in disaster-prone areas through a federalreinsurance program was introduced in the House yesterday by aFlorida congresswoman.[@@]

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The bill is similar to previous legislation that has failed togain passage because of concerns by the Treasury Department andconservative lawmakers.

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Under the bill, the Treasury Department would establish regionalauctions in which both private insurers and reinsurers couldpurchase reinsurance from the government at actuarial rates. Thiswould counter a current trend that sees many carries unable toobtain affordable reinsurance, according to officials at theNational Association of Mutual Insurers (NAMIC).

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The bill is H.R. 846, the Homeowners' Insurance Availability Actof 2005.

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"This bill would benefit both large and small carriers, as largecarriers might choose to buy the contracts directly from theprogram, while smaller companies might choose to buy this coveragefrom reinsurers who would be permitted to divide and transfer theircontracts to many carriers," according to Justin Roth, seniordirector of federal affairs at NAMIC in Washington, D.C.

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The legislation was introduced by Rep. Ginny Brown Waite,R-Fla.

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The system works by having the government sell the contracts ithas purchased and use the funds generated in the sale in the eventof a future natural disaster. "This is an approach that will havevery limited federal involvement and will encourage more privateinvolvement," Mr. Roth said.

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Under the proposed legislation, the federal government wouldonly step in if a disaster was equal to or greater than aone-in-100-year event. There has never been an event that wouldhave met the high threshold of this proposed program, according toNAMIC.

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Any event that does not meet that threshold would still becovered by the private market, Mr. Roth explained. For any disasterover this threshold the companies would pick up 50 cents on everydollar. Like the previous version of this bill, the CongressionalBudget Office (CBO) is expected to score it revenue neutral, whichmeans that it will not cost the government money and will possiblybe a revenue raiser for the federal government.

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"NAMIC believes this program will lead to more companiesentering the disaster markets and will eventually create marketstability," Mr. Roth said.

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Mr. Roth said that introduction of the bill "ensures that debateon the problem of insurance availability in disaster prone areaswill continue.

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"NAMIC believes that this concept will allow insurers to be ableto purchase affordable reinsurance, therefore allowing moreinsurers to enter marketplaces that are prone to naturaldisasters," he said.

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