WASHINGTON--Legislation introduced last week to create a federal emergency commission to study ways to shore up the catastrophe insurance marketplace is already generating controversy.

The bill was introduced May 25 by Sens. Bill Nelson, D-Fla., and Mary Landrieu, D-La., and won the praise of the co-chairs of ProtectingAmerica.org, a group formed to promote federal-state backstops for insurers' catastrophe losses.

At the same time, Robert Hunter, director of insurance for the Consumer Federation of America, called support for any move that would lead to creation of a federal-state backstop premature.

In a letter to Florida Insurance Commissioner Kevin McCarty and National Association of Insurance Commissioners President Alessandro Iuppa, Mr. Hunter said, "I find myself in agreement with industry voices that call on you to slow down and think a bit about what you are doing..."

The NAIC was due to debate today whether to adopt a proposed resolution voicing support for the federal-state backstop idea that a study commission might advance.

Under the Nelson-Landrieu bill, an emergency commission would be created to suggest ways to shore up an insurance marketplace that has been shaken by several years of destructive hurricane seasons.

Allstate Insurance Company has spearheaded activity in support of the commission proposal. The insurer is seeking it as part of its concept of a state-federal partnership with private industry to create a catastrophe fund to shore up the property insurance marketplace in the event of another season like 2005 with its record losses.

"We believe that the Nelson-Landrieu commission will come to the same conclusion, and we urge the Senate and House of Representatives to take immediate action on the legislation," said retired Admiral James Loy, a co-chair of ProtectingAmerica.org, who is former deputy secretary of the Department of Homeland Security.

State Farm said it supports the proposal "in concept," but major trade associations have either remained neutral or opposed it outright.

Critics have also noted that the down-to-the-wire approval of the extension of the Terrorism Risk Insurance Act provided ample evidence that federal lawmakers would be wary of entering into a comparable venture for catastrophe risk.

In his letter, Mr. Hunter point out "two huge blunders." First, he said, there is no mention of the National Flood Insurance Program (NFIP). "What do you propose Congress do about that as part of your scheme?" he asked. "It seems to us that Congress cannot consider expanding the federal role before fixing the awful mess that the NFIP is in."

Moreover, he said to Mr. McCarty and Mr. Iuppa, "You want to create 'incentives' for stronger building codes and retrofitting, but there is no incentive that works, as the NFIP shows."

Mr. Hunter asked, "Just what 'incentives' do you have in mind that will work where other incentives built into the NFIP have failed? We do not need 'incentives,' we need required codes and strict, verified enforcement so the taxpayer is not funding, as in NFIP, unwise construction."

Other serious problems with the NAIC draft mentioned by Mr. Hunter include not mandating state participation in CAT funds and the proposal for "prompt community redevelopment" with no mention of making sure that redevelopment meets tough rebuilding standards in high-risk areas.

There is also, he said, no explanation in depth of why heavily-burdened federal taxpayers should bail out an industry that set record profits in 2004 (even with the four Florida hurricanes) and again in 2005 (despite Katrina and Wilma and the record hurricane losses).

"You have a lot more work to do on this matter before you go off and tell Congress what it should do," Mr. Hunter said. "Why should taxpayers in Iowa be creating a backstop for this excessively rich insurance industry?"

"We encourage you to hold off on passing this resolution until you have had the time to think through some of your ideas much more carefully."

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U.S. CAT Commission Bill Scored

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