House Approves Plan for Natural Disaster Program

WASHINGTON — House of Representatives approved a sweeping plan Thursday to create a federal natural disaster program, responding to a clamor from Florida lawmakers over the skyrocketing cost of homeowners' insurance.

"Today is a turning point for how the federal government responds to natural catastrophes," said Rep. Tim Mahoney, D-Fla., who sponsored the bill with Rep. Ron Klein, D-Fla. "Today, the House of Representatives has the ability to ensure that homeowners across the country will have access to affordable property insurance."

Klein said the bill would reverse the way the federal government pays for disasters such as Hurricane Katrina.

"Every time there is a large natural disaster, and the insurance companies can't handle it and the states can't handle it, the federal government comes in with a big check," Klein said. "Every taxpayer is part of a bailout."

The 258-155 vote came in the face of a threatened veto by the Bush administration, which claims the bill implies the federal government would guarantee private catastrophe bonds aimed at helping states stabilize the homeowners' insurance market.

Klein and Mahoney argued that it does not guarantee federal coverage of such private bonds and that participation would be voluntary among the states.

A similar bill was introduced Tuesday in the Senate by Sens. Bill Nelson, D-Fla., and Hillary Rodham Clinton, D-N.Y., but the Senate is not expected to consider the matter until next year.

House Financial Services Committee Chairman Barney Frank, D-Mass., said he hopes Congress will complete action on the legislation before the 2008 hurricane season begins next June.

The bill would create a two-pronged federal approach to major natural disasters:

— It would establish a quasi-government consortium, similar to Fannie Mae, that would sell long-term catastrophe bonds on the private market to help finance state catastrophe insurance funds. States that did not have such a fund would not be able to participate in the bond consortium.

— In the event of a major catastrophe that exceeded the ability of state insurance funds to handle the loss, the federal government would issue long-term, low-interest loans directly to the states.

An amendment offered by Rep. Ginny Brown-Waite, R-Fla., added another layer in which state insurance funds could purchase reinsurance from the federal government. The reinsurance would be financed by government bonds.

Klein and Mahoney said the catastrophe program is particularly important in Florida, where insurance companies battered by a series of hurricanes have either completely stopped writing homeowners policies or doubled or tripled premiums.

But they argued that all parts of the United States have become increasingly vulnerable to expensive natural disasters such as earthquakes, floods, tornadoes and wildfires.

"This is a national problem," Mahoney said. "Congress has been forced to act because private markets for homeowners insurance have failed."

Opponents of the bill argued that the bond program was unnecessary because states can already join together to issue bonds, and could expose federal taxpayers to a huge liability to cover the bonds. Critics also argued that loans to the states might not be repaid, putting pressure on Congress to forgive the loans and make them grants.

Klein and Mahoney said the current system already grants money to locales hit by major disasters without any expectation that the money would be repaid to the federal government.

Rep. Shelley Moore Capito, R-W.Va., who led opposition to the bill, argued that it would result in less competition among insurance companies and would encourage reckless development in hazard-prone areas, particularly along the coasts.

Rep. Peter Roskam, R-Ill., said he understood Klein and Mahoney's motivation for trying to help Florida homeowners, but argued that much of Florida's insurance problem was caused by "state government intrusion in the market place."

"Why should Illinois bail out states that can't address their own problem?" he asked.

Before approving the bill, the House rejected an amendment by Rep. Chris Shays, R-Conn., that would have replaced the measure with a blue ribbon commission that would study catastrophe insurance issues. The Senate is considering a similar commission.

Mahoney, Klein and Brown-Waite argued that Congress has failed for more than a decade to pass a catastrophe bill and that it does not need further study.

"This Congress has looked at his problem for over a decade, and for over a decade Congress has done nothing," Mahoney said, claiming the amendment was an attempt to "kill this legislation."

Shays said he would support a catastrophe bill once the commission had made a report, but said he was worried that, "in order to do something for the state of Florida, we are going to screw things up for 49 other states — and create huge liabilities for the federal government."

Brown-Waite argued that the federal government already is liable for disasters. She said that in 2005 it spent nearly $90 billion in post-disaster assistance that will not be recovered.