Washington--The Consumer Federation of America is calling for caution as the pressure builds on Congress to create a federal support system for insurance losses due to large natural catastrophes.

CFA noted an increase in calls for such a backstop, including legislation introduced in the House and an advertising campaign by Allstate==the organization released a set of standards it said should form the basis of any new federal program.

"The federal government does not have a good record of setting up insurance programs that are well-run, so Congress needs to be very cautious when considering another plan to back up the insurance industry," said J. Robert Hunter, CFA insurance director.

"The risk to taxpayers under such a program is that it will unjustifiably subsidize the insurance industry or encourage faulty construction in areas at high risk for natural disasters," he added.

Mr. Hunter pointed to recent congressional hearings concerning failures of the National Flood Insurance Program in the wake of hurricane Katrina and the ongoing debate over whether to extend the federal Terrorism Risk Insurance Act as reasons for lawmakers to be wary when considering adding yet another government-backed insurance program.

"Congress should determine why the National Flood Insurance Program has failed to cover most properties in flood zones and has subsidized unwise construction before it sets up another program," said Mr. Hunter. "TRIA is also under the congressional microscope right now because it has provided rich insurance companies with almost $3 billion in free reinsurance."

The TRIA program is expected as likely to be extended, although with changes made to increase the liability of insurers somewhat. Congress is also considering legislation that would reform the flood insurance program to discourage building in areas likely to be flooded.

Under the proposed CFA principles, any program should prohibit construction in ultra-high-risk zones and be limited in high-risk zones.

Additionally, the group said that insurers must charge actuarially determined premiums for new construction, with coverage required for at least five years and to include the cost of potentially selling the property.

Insurers also would be required to offer homeowners or small business coverage if the property involved meets federal mitigation standards, and rates should reflect any government subsidy the insurer receives, the CFA proposed.

While the group said that federal, state and local governments should all assume some financial risk, it also said that each level of government should play a role in regulating any new program and called for the private sector's participation to be as great as possible.

"Tough standards like these will require all interested parties to give up something, including consumers, property owners, insurers, developers and governments," Mr. Hunter said. "It will also be important to protect low and moderate income consumers, perhaps by phasing in requirements to purchase insurance or by providing short-term subsidies for insurance costs."

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