The House on Thursday night gave bipartisan support to legislation aimed at helping coastal states with national catastrophes by pooling their catastrophic risk and transferring it to the private market through catastrophe bonds or reinsurance, but the point may be moot following a threat of a presidential veto.
The vote on the "Homeowners Defense Act of 2007," H.R. 3355, was 258-155, propelled by solid support from members of both parties from Florida, Louisiana, California and other coastal jurisdictions.
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.
Despite the strong vote, however, the bill faces many hurdles. Beyond the veto threat by the Bush administration, the bill lacks clear support in the Senate, and faces a divided insurance industry.
For example, Sen. Hillary Clinton, D-N.Y., a presidential candidate, joined Sen. Bill Nelson, D-Fla., two days before the vote in introducing companion legislation in the Senate. But while the House debate was underway, Sen. Chris Dodd, D-Conn., powerful chairman of the Senate Financial Services Committee and also a presidential candidate, introduced two bills designed to deal with the soaring cost of homeowner's insurance in coastal areas in more limited ways.
In the statement of policy in which it said it "strongly opposes" the 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 House supporters, who engaged in an hour of general debate and then slogged through 14 amendments to the bill before passing it around 9:00 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.
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, "We are all concerned about insurance rates that are increasing in Florida and in other states."
However, she added, "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, 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."
Additionally, 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."
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