WASHINGTON–House Financial Services Committee Chairman Barney Frank, D-Mass, citing a scarcity of available coverage, offered support today for a national catastrophe insurance system.
He said the lack of capacity for catastrophe risk resembles the market for terrorism coverage after the attacks of Sept. 11, 2001.
"It is clear that the government has to step in," Rep. Frank said at a press conference on Capitol Hill. Although the private market is the preferred option of lawmakers, he said the circumstances of the market for catastrophe coverage had led to a "market failure" in which private insurers simply cannot afford the exposure.
Just as with the market conditions that lead to the creation of the federal backstop in the Terrorism Risk Insurance Act, "we have reached a similar point with regards to floods and hurricanes," he said.
Other speakers at the press conference emphasized that the proposed federal backup would apply to catastrophes beyond hurricanes and floods, such as earthquakes, mudslides or volcanoes.
"This is not just a Florida problem, said Rep. Ginny Brown-Waite, R-Fla., noting that rates in other coastal areas have increased dramatically since the storm seasons of 2004 and 2005.
Rep. Carolyn Maloney, D-N.Y., pointed out that the problem is not a new one, and she had introduced legislation for a federal backstop as long ago as the 106th Congress. Victims of a major natural disaster "need to know that the insurance system will be there to help them," she said.
While the concept of federal supports for catastrophe coverage is gaining support, there was little discussion of the specifics the proposal would contain.
Rep. Brown-Waite said it was "absolutely paramount" that insurers pass along whatever savings they achieve from a federal backstop to consumers, and Rep. Charlie Melancon, D-La., said the program would be "patterned more like a publicly traded company" than current government programs.
Rep. Tim Mahoney, D-Fla., said the legislation would bar the use of anticoncurrent clauses that, for example, in the case of flooding, serve as a bar to claims for damage inflicted by other sources at the same time. He noted that such language has been the cause of many lawsuits filed in the wake of Hurricane Katrina. Additionally, he said the program would not increase the size of the federal bureaucracy.
The program will put an emphasis on mitigation, according to Rep. Ron Klein, D-Fla. "The more we can do with building codes and strengthening properties, the more we can reduce the risk," he said.
However, like others at the press conference, Rep. Mahoney noted that "we're at the beginning of this," and that a final product would take shape over the next few months.
Both Rep. Frank and Rep. Bobby Jindal, R-La., compared the proposal to the Terrorism Risk Insurance Act legislation. Rep. Frank said it was "legitimate" for those along the Gulf of Mexico to expect the same response as those affected by the terrorist attacks, and Rep. Jindal said it would be "appropriate" to do so.
"It shouldn't matter whether it was an act of terrorism or a natural disaster," Rep. Jindal said.
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