WASHINGTON — A group is urging Congress to enact a federal homeowners' insurance program for natural disasters such as hurricanes, earthquakes and wildfires before the next one strikes, saying such events pose a serious threat to the economy.
"It's not 'if'" there will be another catastrophe, said former FEMA director James Lee Witt, a co-chair of ProtectingAmerica.org, "it's when." The nonprofit coalition, which includes insurance companies, emergency responders and disaster experts, released its report Thursday at the National Press Club.
"The federal government effectively acts as the insurer of last resort," said report author Jonathan Orszag, a senior managing director of Compass Lexecon, an economics consulting firm. Uncle Sam fills the gap between private insurers and reinsurance, he said, when there are so-called mega-catastrophes, such as back-to-back Hurricanes Katrina and Rita in 2005.
Witt and ProtectingAmerica.org co-chair Adm. James Loy, former deputy secretary of the Department of Homeland Security, cited the report as they reiterated their support for the Homeowners' Defense Act, a bill introduced by Rep. Ron Klein, D-Fla., and Sen. Bill Nelson, D-Fla.
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"We are looking for availability and affordability," Loy said.
The bill sets up a Federal Catastrophe Bond Consortium for state-sponsored insurance funds to voluntarily pool their catastrophe risk with one another, and then transfer that risk to the private markets through the use of catastrophe bonds and reinsurance contracts.
More than 30 states, including Florida, Texas and Mississippi, have created catastrophe insurance plans.
"In these difficult economic times, taxpayers simply cannot be on the hook for cleanup in the wake of a major natural disaster like Hurricane Katrina," Klein said.
The bill passed the House in the last Congress, and Klein thinks it will pass the chamber again this year.
"Major catastrophic events can pose a serious threat to the economy, especially in its present distressed condition, and highlight market failures in the private insurance and reinsurance industries that should be addressed before the next major catastrophe strikes," Orszag said.
Critics of the legislation, however, warned about the impact of another federal program.
"While well-intended, our concern is that the Homeowner Defense Act would increase development in vulnerable coastal areas, putting more people at risk," said Ed Hopkins, director of the Sierra Club's environmental quality program. "Instead, coastal areas and wetlands should be protected from intensive development to buffer communities from hurricanes."
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