Advocates of legislation to create a national insurance program
say it's better to plan ahead than do a bailout after a natural
disaster. Critics say it would amount to a subsidy for owners of
coastal mansions and encourage people to live in places they
Given that so many Americans live in areas that have been prone
to natural disasters - hurricanes, earthquakes, tornados - is it
time for the federal government to intercede to help states and
property owners obtain more reasonable castastrophic insurance?
Former FEMA director James Lee Witt says it is. He stressed the
need Wednesday for a national financial plan for insuring against
disaster-related losses, saying it's better to plan ahead up front
than to do a bailout after the fact.
Mr. Witt addressed a House Financial Services Committee panel on
behalf of the controversial Homeowners' Defense Act, a bill
sponsored by Rep. Ron Klein (D) of Florida and more than 70
bipartisan cosponsors. A similar bill has been filed in the Senate
by Sen. Bill Nelson (D) of Florida.
An earthquake along the New Madrid Fault Zone in the central
United States or a massive coastal hurricane, Witt testified, "would
cause such enormous damage that our economy would be stunned,
private resources quickly depleted, and an immediate federal bailout
of hundreds of billions of dollars could potentially be required."
The Homeowners' Defense Act would create a federal risk
catastrophe pool that would allow states to pool their risk for
various disasters to the private insurance market. In turn,
homeowners would have lower premiums.
Opponents call it a "beach house bailout" because the majority of
claims are expected to come from places with coastal mansions.
States without a coast would help pay for the insurance coverage.
Insurance Studies at the Competitive Enterprise Institute and
Reinsurance Association of America oppose the bill, as do many
In a letter to Rep. Barney Frank, chairman of House Financial
Services Committee, environmental groups including the National
Wildlife Federation, Audubon, and the Sierra Club wrote: "We have no
doubt that Representative Klein's efforts to ease Floridians'
insurance rates are well intended, but we are extremely concerned
that providing a federal insurance subsidy will create incentives
for more development in environmentally sensitive coastal areas and
increase exposure to hurricane-related risk. …