WASHINGTON–House lawmakers will focus on natural catastrophe protection legislation this week that would expand various types of federal involvement.
Today the House Financial Service Committee is to take up a bill that would create a national catastrophe risk consortium, and Thursday the full House considers a measure to add wind coverage to the National Flood Insurance Program.
Both bills face opposition from at least parts of the insurance industry.
For example, the National Association of Mutual Insurance Companies, in a statement yesterday, expressed “concerns” about the catastrophe bill H.R. 3355, the Homeowners Defense Act.
The bill, amongst other provisions, creates a national catastrophe risk consortium.
“We are encouraged that members of the committee are looking into developing a comprehensive natural disaster plan to address concerns about coastal insurance affordability and availability,” said Justin Roth, NAMIC’s senior federal affairs director.
“However, we are concerned that this legislation would expand the federal government’s role to the point that it could potentially crowd out the private insurance market,” he added.
The legislation would create a non-governmental entity – the National Catastrophe Risk Consortium – through which participating states would be able to pool their resources to purchase reinsurance, Mr. Roth said.
“The bill leaves unanswered the question of how this arrangement would compete with the private reinsurance market and who would bear liability from the consortium’s actions, since the bill indicates the federal government would assume no liability,” Mr. Roth said in explaining NAMIC’s opposition.
Mr. Roth said NAMIC will urge the House to instead consider a recent bill passed by a Senate panel. “The legislation passed in the Senate Banking Committee would establish a bi-partisan commission to look into and make recommendations on natural disaster issues,” he said.
Insurers are also expected to lobby intensely against H.R. 3121, the Flood Insurance Reform and Modernization Act, when it comes to the House floor Thursday.
One way the program reforms the NFIP, for example, is phasing out subsidized rates on vacation homes and second homes, a provision extending the program to cover all home damage perils in addition to flooding concerns in the insurance industry.
The NFIP currently owes the federal government $17.5 billion for losses, most of which were suffered as the result of Hurricanes Katrina and Rita.
While the insurance industry is expected to argue that including wind coverage will significantly increase the potential cost to the government, the Congressional Budget Office disagrees.
In its estimate of potential cost to the government of adding wind coverage, CBO says it expects the new coverage “would increase premium receipts and additional claims payments by about the same amount–resulting in no significant net budgetary impact.”
But a study by Towers Perrin Tillinghast commissioned by the American Insurance Association and released in July paints a different picture.
The study by the consulting firm said that in some scenarios, “deficits from catastrophic wind events to the NFIP in a single year could be $100 billion to $200 billion, or potentially even higher.”
Rep. Gene Taylor, D-Miss., principal supporter of adding all-perils, rejected the study. His policy director Brian Martin reacted some weeks ago by saying, “Wow. You really cooked the books on that one. Are there no professional standards in the actuarial industry?”
The AIA and Towers Perrin consultants rejected the criticism by Rep. Taylor’s office, saying they stood behind the study.
In a note to investors Monday, Washington Analysis, which advises buy-side investors on Wall Street, said, “While the House will likely pass it, we expect it will have a difficult time in the Senate, where it is not likely to have the support of Senator Chris Dodd, D-Conn., chairman of the Banking Committee.