WASHINGTON--A coalition opposing legislation that would create a national risk pool for natural catastrophes said it has done an analysis showing the measure would create massive new taxpayer liabilities.

The study commissioned by Americans for Smart Natural Catastrophe Policy, which is partially funded by insurance and reinsurance interests, lists estimates of what its said would be the burdens on individual states.

Its cost study was done on the "Homeowners Defense Act of 2007," H.R. 3355, whose supporters envision a federal pool as a method of combating high homeowners' insurance in hurricane-prone areas.

In addition, it evaluated the House version of legislation reauthorizing the National Flood Insurance Program. That measure (H.R. 3121) would add wind insurance to the flood program.

But the Senate version of the bill, passed in May with the same number, does not contain the provision.

The Homeowners Defense Act would allow states to pool catastrophe risks and then transfer them to the private market through the sale of catastrophe bonds or purchase of reinsurance.

That bill also came under fire from presumptive Republican presidential candidate Sen. John McCain, R-Ariz., earlier this week. He said that while he sympathizes with homeowners battered by soaring insurance costs, he was not prepared to endorse a national risk pool as a way to bring those prices down.

Instead, Sen. McCain said, states threatened by the storms should form regional alliances to protect themselves.

The study released today was prepared by Robert J. Shapiro, who served as under secretary of commerce for economic affairs in the Clinton administration, and Aparna Mathur, a research fellow at the American Enterprise Institute.

Taxpayers in 20 states would be hit particularly hard by multibillion-dollar burdens under the legislation, the Shapiro-Mathur economic study found.

Specifically, the study said, the cost would be $19 billion for Californians; $11 billion for New Yorkers; $7 billion for Illinois residents; $6 billion for Pennsylvanians and taxpayers in New Jersey; $5 billion for those in Ohio; $4 billion each for taxpayers in Massachusetts, Michigan and Virginia.

It estimated the cost as at least $3 billion for taxpayers in Connecticut, Indiana, Maryland, Minnesota, North Carolina and Washington.

The new economic study projected that enactment of H.R. 3355 or adding wind coverage to the NFIP would add these costs to the taxpayer even though it said private insurance and reinsurance arrangements already in place have worked well.

The Shapiro/Mathur study argued that enactment of either bill "would displace private capital deployed in insurance and reinsurance companies and, in its place, force enormous financial transfers from taxpayers in most states to some businesses and residents of Gulf states, especially in Florida."

Eli Lehrer, a senior fellow at the Competitive Enterprise Institute, another member organization of Americans for Smart Natural Catastrophe Policy, argued in reaction to the new study that, "We shouldn't displace productive private insurance and reinsurance industries with expensive, unworkable government programs."

Mr. Lehrer said, "The House and Senate conferees on the National Flood Insurance Program should take a very careful look at this groundbreaking study. Above all else, we need to create an insurance environment that preserves the environment and encourages safe, effective building.

"A national catastrophe policy commission could play an important role pointing the way toward a better system for managing catastrophes," he added.

The issue of some sort of government backstop arrangement for natural catastrophes is one which has split the industry with some carriers such as Allstate behind the ProtectingAmerica.org organization, which supports the concept.

Special Reports /

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