Florida's two U.S. senators introduced five pieces of legislation last week designed to "comprehensively" address issues related to national hurricane preparedness, including one that would establish a federal reinsurance program.
Many of the bills–sponsored by Democrat Bill Nelson, the state's senior senator, and Republican Mel Martinez–were introduced last year, but did not gain much traction in Congress.
However, this year, the senators said, Sen. Chris Dodd, D-Conn., chair of the Senate Banking Committee, has promised substantial scrutiny, starting with an April 11 hearing on hurricane-related issues.
The bills would create a national backstop for state natural catastrophe insurance programs, allow insurers to set aside pretax natural catastrophe reserves, and permit individual catastrophe savings accounts to be established.
The legislation would also launch a 10-year, $4.35 billion "multi-agency effort" designed to improve research aimed at predicting and preparing for hurricanes.
The bills would provide a limited tax credit for mitigation efforts undertaken by both businesses and homeowners to reduce the impact of hurricanes and tornadoes. (Similar legislation has been introduced in the House by Rep. Gus Bilirakis, R-Fla., providing a tax credit equal to 25 percent of mitigation expenditures.)
The industry's reaction was mixed.
The National Association of Mutual Insurance Companies said they were "applauding" the two senators for "taking the lead" in addressing coastal insurance issues.
"We believe that the private industry maintains enough capacity to continue to write policies in disaster-prone areas," said NAMIC's senior director for legislative affairs, Justin Roth.
However, he added, "we support the two measures that allow both insurance companies and homeowners to save money through tax-deferred accounts that could be used in the event of a future natural catastrophe." He said NAMIC would also back other federal measures, such as increased funding for mitigation and encouraging states to adapt stronger building codes.
The Property Casualty Insurers Association of America said it supports "solutions that clarify the role of private markets and government in financing losses from future disasters and stabilize property insurance markets in catastrophe-prone areas over the long term," promising to closely examine the legislative package.
PCI is "a strong believer in the power of the free market to solve most problems," noted the group's federal public affairs director, Cliston Brown.
At the same time, he added, "we believe there are some risks in some areas that market solutions alone may not have the tools to address," and in those cases, "we favor a state-by-state approach to addressing market problems and believe the federal government can play an important role in stabilizing certain markets against the risk of mega-catastrophes by providing states with high-level federal liquidity support."
The American Insurance Association confined its comments to provisions that would provide tax incentives for individuals and states to save up for a mega-storm.
Dennis Kelly, an AIA representative, said he didn't think allowing insurers to create a tax-deferred reserve or account to cover losses from future major natural disasters "will do much." He explained that catastrophe reserves are not likely to aid availability in a material way and "will not make insurance more affordable."
Mr. Kelly, addressing the bills to allow individual tax credits for hurricane and tornado mitigation expenditures, and to establish tax-exempt Catastrophe Savings Accounts for individuals, said that "we support measures to help individuals do more to reduce losses from natural catastrophes."
At the same time, Sen. Nelson made clear he did not want his legislative package to be intertwined with efforts by some in Congress to repeal the industry's federal antitrust exemption under the McCarran-Ferguson Act.
"I don't want to get [these bills] wound around that axle," Sen. Nelson said, contending that insurers "would fight to the death" to retain the exemption. "I hope our efforts don't get involved [with the battle] over McCarran-Ferguson," he added.
At a press conference, Sen. Nelson and Sen. Martinez also said they are drafting legislation that would create a regional catastrophe fund they hope would allow the federal government to provide incentives for states to join.
They also mentioned that their efforts to mitigate the cost of homeowners insurance for Florida residents will include a move to reform and expand the National Flood Insurance Program.
The reason for the blizzard of legislative initiatives, the two explained, is that homeowner's insurance in Florida is becoming unaffordable, and they want to create a debate leading to legislation that would make hurricane and tornado mitigation efforts a national program.
"The big one is coming," Sen. Nelson said–referring to a hurricane involving losses of $50 billion or more. He said no state or insurance company could afford to pay such losses, and the federal government would clearly be the savior of last resort–as it is most national disasters.
"I am trying to build consensus for a federal role," he said.
Moreover, Sen. Nelson said, "the people of Florida are hurting," suffering from the twin problems of high insurance rates and property taxes. "This is driving middle-income and lower-income people to a decision to get out of their homes. It shouldn't be that way," he added.
Legislation calling for similar reforms first introduced in the last Congress by Rep. Mike Oxley, R-Ohio, then chair of the House Financial Services Committee, is also expected to be introduced in that chamber this week.
Asked to comment on whether politicians–both state and federal–were "scapegoating" insurers because of hurricane-related cost increases, both senators criticized the industry.
Sen. Martinez noted that hurricanes had not resulted in the insolvency of any insurer, adding that when homeowners "pay premiums, they expect to be paid when they submit a claim."
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