Time for a National Insurance Program to Cope with Natural Disasters?
Parker, Suzi, The Christian Science Monitor
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 shouldn't.
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 environmental groups.
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. …