Saturday, May 19, 2007
Yara Zakharia, Esq.
Lawmakers are promoting a proposal that would establish a federal insurance backstop for cataclysmic disasters such as hurricanes along the Gulf coast, earthquakes in California, and floods along the Mississippi River. The reason seems to be self-evident: Skyrocketing insurance rates have caused many Americans, especially those along the coasts, to forego homeowner’s coverage. The relentless 2004-2005 hurricane season, which spawned eight major hurricanes (Ivan, Jeanne, Dennis, Charley, Frances, Katrina, Wilma and Rita) that inflicted almost $40 billion in damage along the way, gave rise to the current insurance crisis. The exorbitant insurance costs priced many homeowners and prospective homeowners out of the Florida market. The brutal hurricane losses also led some companies to drop thousands of policyholders in a number of coastal states.
The proposed bill calls for the creation of a national catastrophe fund for property insurance that is comparable to the post-9/11 terrorism insurance program. In order for this proposal to have any concrete value, however, a good number or a majority of the states would have to adopt it. The way the program works is as follows: When a natural disaster occurs, regardless of the location, property insurance customers throughout the U.S. would share the costs.
While noting that the insurance companies are "split nine ways to Sunday about what is the federal role", Florida Senator Bill Nelson, one of the legislation's proponents, expressed anticipation at "seeing if we can bring people together."
Florida governor Charlie Crist, who signed a bill into law that would lower rates by increasing Florida's catastrophe fund twofold, is also one of the most vocal supporters of a national catastrophe fund which would serve as a fall-back for state reinsurance funds. He convinced other governors in the South to sign on to the concept of a federal catastrophic insurance program. Crist has also raised the issue with governors of other states, including Eliot Spitzer (New York), Rick Perry (Texas), and Arnold Schwarzenegger (California), all of whom endorse the idea. Furthermore, Crist met with House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, two Democrats with considerable political clout. This summer, he plans to petition the National Governors Association when it meets in Michigan.
Representative Bobby Jindal (R-La) explained at a recent new conference that the absence of affordable property insurance is complicating recovery efforts in Louisiana, battered by Hurricane Katrina.
Another political heavyweight backing the measure is Representative Barney Frank (D-Mass), chair of the House Financial Services Committee. Referring to the terrorism insurance program, he said "It is clear that the government has got to step in". He added that federal backdrop was needed, since "we have reached a similar point with regard to what happens with floods and hurricanes".
Appearing with Frank were legislators from New York, Louisiana and Florida who jointly emphasized that the beneficiaries of the National Catastrophe Fund would not be solely residents of coastal areas.
