WASHINGTON–The House late yesterday approved legislation allowing coastal states to pool their catastrophe risk and obtain private market insurance coverage through catastrophe bonds and reinsurance.

Propelled by solid support from members of both parties from Florida, Louisiana, California and other coastal jurisdictions, the vote on the “Homeowners Defense Act of 2007,” H.R. 3355, was 258-155.

The bill also creates the National Homeowners Insurance Stabilization Program under which the Treasury secretary can extend loans to states impacted by severe natural disasters.

However, despite the strong vote, the bill faces many hurdles, including unclear support in the Senate, a divided insurance industry and a veto threat from the Bush administration.

Presidential candidate Sen. Hillary Clinton, D-N.Y., and Sen. Bill Nelson, D-Fla., introduced companion legislation in the Senate two days before the House vote.

But, while the House debate was underway, Sen. Chris Dodd, D-Conn., powerful chairman of the Senate Financial Services Committee and another presidential candidate, introduced two bills that would address the soaring cost of coastal homeowners insurance in more limited ways.

In the statement of policy in which it said it “strongly opposes” the House bill, the Bush administration explained, “Although pooling can be an effective mechanism for managing risk, there is no need for a federal role because states are currently free to associate to address catastrophe risk,” the position paper said.

Furthermore, it said, “the consortium's federal charter would create an implicit guarantee that the federal government backstops the consortium's financial obligations.”

The statement said this implicit guarantee would result in an “inequitable federal subsidy for certain state insurance programs and policyholders.”

But that didn't deter its House supporters who engaged in one hour of general debate and then slogged through 14 amendments to the bill before passing it around 9 p.m.

Its two main sponsors were South Florida Democrats Ron Klein and Tim Mahoney.

Rep. Klein opened debate by saying, “It is important to understand that insurance affordability and availability problems are becoming an issue across the country.”

He added that hundreds of thousands of homeowners have faced significant rate increases or have been dropped altogether, “and not just in the Gulf states, but also Maryland, New York and Massachusetts.”

“It is simply unacceptable for property owners not to be able to get coverage in these markets,” he said.

And Rep. Mahoney added that the bill is “a turning point for how the federal government responds to natural disasters.”

He said it “ensures that we plan for them in a fiscally responsible manner and ensures that it will not cost the taxpayers a dime.”

The manager for opponents was Rep. Shelley Moore-Capito, R-W.Va., who said while “we are all concerned about insurance rates that are increasing in Florida and in other states…at this point there is no consensus that H.R. 3355 is the best solution to the problem.”

She explained that the bill “could put the taxpayers at risk for bailing out” state insurance pools, pointing to Citizens in Florida as an example.

The insurance industry also appeared divided on the legislation. Spokesmen for the Reinsurance Association of American and the American Insurance Association both said their members opposed the bill.

Marc Racicot, president of the AIA, for example, said, “This legislation falls short in trying to address the problems in coastal insurance markets.”

He contended that in the AIA's view the bill “will not generate new private sector insurance, reinsurance or capital market capacity, and is likely to encourage states to create thinly financed, state-run reinsurance facilities that will displace the private market and require a federal government bail-out in the event of a catastrophe.”

But Joseph Annotti, senior vice president, public affairs, of the Property Casualty Insurers Association of America, said House passage “opens the door to additional discussions in the Senate about ways to enhance the measure to include critical market freedom provisions that would work in tandem with a federal liquidity facility.”

Some of PCI's members, including Allstate, are members of ProtectingAmerica.org, which strongly supports the bill.

In a statement, James Lee Witt, former director of the Federal Emergency Management Agency and co-chair of ProtectingAmerica.org., said: “Passage of this bill, coupled with the recent introduction of its Senate companion bill by Sen. Clinton and Sen. Nelson, are major steps toward the establishment of a comprehensive and integrated state and federal, public and private national program to improve the way that American families are prepared for and protected from massive natural catastrophes.”

The manager's amendment to the legislation that was approved by the House contains a provision supported by Protectingamerica.org that would allow states that participate in the fund to purchase reinsurance through a national catastrophe fund, which only would pay in a once-in-200-year event.

The amendment was proposed by Rep. Ginny Brown-Waite, R-Fla.

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House Okays Cat Pool Bill For States

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