A natural disaster bill introduced by a Florida congresswoman from a coastal district will ensure that debate on the problem of insurance availability in disaster-prone areas will continue, according to the National Association of Mutual Insurance Companies.
The Homeowners’ Insurance Availability Act of 2005, introduced by Rep. Ginny Brown-Waite, R-Fla., would establish regional Treasury Department auctions in which both private insurers and reinsurers could purchase reinsurance from the government at actuarial rates.
“This concept will allow insurers to be able to purchase affordable re-insurance, allowing more insurers to enter marketplaces that are prone to natural disasters,” said Justin M. Roth, NAMIC senior director of federal affairs. “Consumers will benefit from greater competition because Rep. Brown-Waite’s bill creates an incentive for more carriers to enter these markets, eventually creating market stability.”
The bill would benefit both large and small carriers. Large carriers might chose to buy the contracts directly from the program, while smaller companies might choose to buy this coverage from reinsurers who would be permitted to divide and transfer their contracts to many carriers.
As Congresswoman Brown-Waite stated, “H.R. 846 would create an alternative market for primary insurers to purchase reinsurance, helping reduce the cost of property and casualty coverage for homeowners.”
The government would then take the funds from the sale of reinsurance contracts and establish a fund to be used in the event of a natural disaster. This approach will have a very limited federal involvement and will encourage more private involvement. Roth added, “This bill will give insurers the necessary level of comfort needed in order for them to write more coverage in these disaster prone areas.”
Under the proposal, the federal government would only step in if a disaster were equal to or greater than a one-in-100 year event. No past event has met the high threshold of this proposed program. The private market would cover any event that does not meet that threshold. In addition, for those disasters that do meet the high threshold, a cost-sharing program between the government and the private companies would exist. As in a previous version of this bill, the Congressional Budget Office (CBO) is expected to score it revenue neutral-it will not cost the government money, and possibly be a revenue raiser for the federal government.
“NAMIC applauds Rep. Brown Waite for recognizing that there is a problem in those markets that are prone to natural disasters, and for taking a lead on this issue,” Roth concluded.
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