Florida Sen. Bill Nelson, D, says he plans to reintroduce legislation giving the Treasury Department authority to make loans available to state-run reinsurance programs, such as the Florida Hurricane Catastrophe Fund, to ensure their solvency.

His decision reopens the debate within the insurance industry regarding how to handle the cost of national catastrophes.

The legislation has been around in some form since 2007 but has failed to gain traction because of its obvious open-ended cost to the U.S. taxpayer.

The bills are known as the “Homeowners Defense Act,” or colloquially as the “Beach House bailout.”

Reaction to Nelson's announcement was mixed.

Ray Lehmann, a senior fellow at the R Street Institute, charges that the plan, if enacted, “would encourage development in risky and environmentally sensitive regions and stick taxpayers with the bill for disasters currently covered by private insurance companies.”

He adds, “This legislation is built on a faulty premise: that the federal government is needed to spread the risk of catastrophes and provide incentives to transfer risk to the private capital and reinsurance markets. In reality, private reinsurance markets actually have excess capacity for catastrophic risk, and the capital markets' appetite can be seen by the record issuance this year of catastrophe bonds.”

But ProtectingAmerica.org, also based in Washington, voiced support for the bill. Shachar Sharon, the group's spokesperson, says this hurricane season is expected to be an active one, with up to 11 hurricanes.

“It is encouraging that Nelson shares our belief that immediate action is needed to reform the way we prepare financially for the natural disasters that will inevitably occur,” she says.

She adds, “This is far from a beach house or summer vacation issue — this is an issue of fiscal responsibility that concerns homeowners across America.”

Nelson announced his plans Monday at the National Hurricane Center in Miami on the occasion of the opening of the 2013 hurricane season.

Nelson in the past has introduced separate disaster-related bills, one that would increase funding for hurricane research and another to create a national catastrophe fund.

He said he plans to re-introduce both bills next week when the Senate reconvenes following the Memorial Day recess.

And he said he is exploring combining the catastrophe fund measure and the hurricane research bill into one piece of legislation, with the intention of having it referred to the Senate Commerce Committee on which he sits.

He made his comments on the same day the Miami Herald published a story indicating that one-third of the insurance companies that have taken over policies previously held by Citizens Property Insurance Corp. have gone belly up — and cost taxpayers $400 million — despite no major hurricanes in the state over the last seven years.

Florida's state reinsurance plan has more than $6 billion in the bank, but actuaries and auditors have warned that it could quickly become insolvent if a major hurricane hits the state.

Most of the major homeowners insurers have left the state in the wake of huge losses from Hurricane Andrew in 1992 and subsequent events.

Moreover, the state has been reluctant to approve high premium increases proposed by personal-lines insurers, forcing many homeowners to opt-in to the state-run Citizen's program.

Gov. Rick Scott and Insurance Commissioner Kevin McCarty have provided incentives for domestic insurers to take policies out of Citizens, but the Miami Herald piece notes, “As Citizens intensifies its efforts to turn over policies to smaller insurers — what industry officials call 'takeout' policies — there is a growing fear that the young, untested companies will not be able to withstand the hurricane season.”

It adds, “While the takeout firms have all been vetted by the state's Office of Insurance Regulation, some resemble OIR-approved companies that ultimately failed after assuming Citizens policies: They are young, growing rapidly and reliant on government incentives to sustain their operations.”

Special Reports /

Sen. Nelson to Revive Homeowners Defense Act, Dividing Industry

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