Legislation introduced last month to create a federal emergencycommission to study ways to shore up the catastrophe insurancemarketplace is already generating controversy, with a top consumeradvocate leading the opposition.

The bill introduced by Sens. Bill Nelson, D-Fla., and MaryLandrieu, D-La., won the praise of the co-chairs ofProtectingAmerica.org, a group formed to promote federal and statebackstops for insurer catastrophe losses.

The National Association of Insurance Commissioners last weekalso passed a resolution by conference call supporting thelegislation and urging its prompt adoption.

In a losing effort to get the NAIC to delay a decision, RobertHunter, director of insurance for the Consumer Federation ofAmerica, called support for any move that would lead to creation ofa federal-state backstop premature.

In a letter to Florida Insurance Commissioner Kevin McCarty andNAIC President Alessandro Iuppa, Mr. Hunter said, “I find myself inagreement with industry voices that call on you to slow down andthink a bit about what you are doing.”

Under the Nelson-Landrieu bill, an emergency commission would becreated to suggest ways to shore up an insurance marketplace thathas been shaken by several years of destructive hurricaneseasons.

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

“We believe that the Nelson-Landrieu commission will come to thesame conclusion, and we urge the Senate and House ofRepresentatives to take immediate action on the legislation,” saidretired Admiral James Loy, a co-chair of ProtectingAmerica.org, whois former deputy secretary of the Department of HomelandSecurity.

State Farm said it supports the proposal “in concept,” but majorinsurer trade associations and individual carriers have eitherremained neutral or opposed it outright.

Critics have also noted that the down-to-the-wire approval toextend the Terrorism Risk Insurance Act last December providedample evidence that federal lawmakers would be wary of enteringinto a comparable venture for catastrophe risk.

In his letter, Mr. Hunter pointed out “two huge blunders” in thebill. First, he said, there is no mention of the National FloodInsurance Program. “What do you propose Congress do about that aspart of your scheme?” he wrote. “It seems to us that Congresscannot consider expanding the federal role before fixing the awfulmess that the NFIP is in.”

Moreover, he said to Mr. McCarty and Mr. Iuppa, “You want tocreate 'incentives' for stronger building codes and retrofitting,but there is no incentive that works, as the NFIP shows. Just what'incentives' do you have in mind that will work where otherincentives built into the NFIP have failed? We do not need'incentives'–we need required codes and strict, verifiedenforcement so the taxpayer is not funding, as in NFIP, unwiseconstruction.”

Other serious problems with the proposal cited by Mr. Hunterinclude not mandating state participation in catastrophe funds andcalls for “prompt community redevelopment,” with no mention ofmaking sure that redevelopment meets tough rebuilding standards inhigh-risk areas.

There is also, he said, no explanation in depth of whyheavily-burdened federal taxpayers should “bail out” an industrythat set record profits in 2004 despite record hurricane losses thelast two years.

“You have a lot more work to do on this matter before you go offand tell Congress what it should do,” Mr. Hunter wrote. “Why shouldtaxpayers in Iowa be creating a backstop for this excessively richinsurance industry? We encourage you to hold off on passing thisresolution until you have had the time to think through some ofyour ideas much more carefully.”