Florida renews attempts at national insurance pool

Sun SentinelNovember 24, 2012 

WASHINGTON -- The costly destruction of Superstorm Sandy has inspired Florida members of Congress to make renewed attempts to create a national insurance pool to finance disaster recovery -- and to help drive down costs for homeowners.

U.S. taxpayers have spent $250 billion over two decades to help Florida and other states recover from natural disasters, a big burden for a nation deep in debt.

Now New York officials are seeking $30 billion to help their state recover from Superstorm Sandy, and New Jersey officials, still assessing the damage, plan to ask for many billions more.

Proponents say a national insurance plan would spare taxpayers the brunt of such costs while making homeowner insurance more affordable, especially in storm-prone places such as Florida.

Consumers in the state would save on average $535 a year per household, according to a 2010 estimate by Milliman Inc., an actuarial consulting firm.

"We think Sandy is a perfect reminder that we are paying for these things one way or another," said Jeff Grady, president of the Florida Association of Insurance Agents.

"It's increasingly evident that state systems can't handle it, even in Florida, and we've got the most refined system of all," he said. "So you reach for the concept of spreading the risk more, pooling resources better and finding a way to pre-fund the event."

Soaring insurance premiums after several hurricanes hit Florida in 2004 and 2005 shook the dream of homeownership. Rising rates, along with higher property taxes, aggravated the housing crisis, which led to the Great Recession and made owning a home in the Sunshine State seem more like a trap than a good investment.

"As insurance has gone up, that has dictated to a certain extent what kind of house people buy and how much they spend on it, because they look at their monthly expense of ownership," said Leo Miller, a real estate agent in Lake Worth, Fla. "That's part of living down here by the ocean and this far south. Unfortunately in Florida, we've been hit (by hurricanes) quite often in the last decade."

Congress sent $250 billion of aid to Florida and other states hit by natural disasters from 1989 to 2010, according to the Congressional Research Service.

Not all of it went to the right places. A Sun Sentinel investigation found that federal officials approved $31 million of aid for Miami-Dade County after Hurricane Frances in 2004, though the storm hit 100 miles farther north.

The Florida experience and disasters elsewhere inspired the U.S. House to pass a bill in 2007 sponsored by then-Democratic Reps. Ron Klein and Tim Mahoney of Florida to create a national catastrophe insurance fund. But the bill quietly died for lack of action in the Senate when opposed by then-President George W. Bush and many in the insurance industry who feared government intrusion in the private marketplace.

Now, inspired by Sandy, some members want to make another attempt, including Florida Democrats Ted Deutch and newly elected Alan Grayson.

"Since Congressman Klein passed that bill through the House, there have been significant natural disasters that have hit in all parts of our country," Deutch said, "so I think there's a growing understanding that a national approach would benefit the citizens throughout the country and lower their insurance costs in a real way."

Most senators represent states that have experienced mega-disasters, from earthquakes and wildfires in the West to tornadoes and massive flooding in the Midwest to hurricanes and nor'easters in the Northeast.

A national fund "would make hurricane insurance affordable for Floridians and other people in exposed areas like Louisiana and Alabama and, surprisingly, even in New York City," Grayson said. "Who would have guessed that? Now it's an issue that clearly affects the entire Eastern Seaboard and literally over a hundred million people."

Proponents hope Congress will consider such a measure during its lame-duck session this year when deciding on emergency funds for recovery from Sandy. If not, they hope to push it through the next session of Congress.

The latest bill -- called The Taxpayer Protection Act, sponsored by U.S. Rep. Albio Sires, D-N.J. -- would set up a national catastrophe fund. Homeowners would buy policies from private insurers, who would contribute a portion of the premiums to a national fund. And the national fund would provide re-insurance to back up state disaster programs -- like the Florida Hurricane Catastrophe Fund -- for massive losses above a specified amount.

States could opt in or out. The federal government would serve as a financial backstop to reduce the risk for insurers and the need to charge higher premiums. Rates would vary, depending on where you live.

"Someone living on the beach in Florida would pay more than someone in Orlando. And someone in Orlando would pay more than someone in North Dakota," said Edward Collins, national director of ProectingAmerica.org, a group devoted to preparing for disasters. "A special provision would limit benefits for affluent homeowners so we make sure that typical homeowners get the benefits of this."

Critics remain concerned that taxpayers would be on the hook for costly disasters.

"The bad part about the federal government getting involved is that it becomes a bureaucratic nightmare," said Steven Schwartz, an independent insurance consultant in Fort Lauderdale. "It would take a year for some people to get paid on their claims. You'd have politicians, not insurance people, in the trenches handling this stuff. If the government funds it, fine. If it gets involved in day-to-day operations, forget it."

Some environmental groups also object, saying a national fund would amount to a beachfront bailout and encourage development in vulnerable places, such as barrier islands and low-lying areas prone to flooding. "It actually incentivizes people to live in harm's way," SmarterSafter.org, a coalition of environmentalists and insurers, warned Congress last month.

As a result, the legislation faces high hurdles in a divided Congress. But proponents plan to keep trying, saying a public-private pre-funded partnership is bound to be better than sending billions of dollars of aid directly from the treasury.

Bradenton Herald is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service