Catastrophe Fund Conflict between South Florida Congressional Members and White House Opposition

A Florida-led bid to trim homeowners' insurance premiums by creating a national risk pool met with staunch opposition Thursday from the Bush administration and lawmakers from states who said they oppose subsidizing a beachfront lifestyle. 
 
The upshot of the House committee hearing for the legislation -- a "very steep hill to climb," said Rep. Adam Putnam of Bartow. 
 
The stiffest opposition came from the Bush administration's Phillip Swagel, assistant Treasury Secretary for economic policy. Swagel said the proposal would push out private insurers and encourage "overdevelopment in hurricane- and earthquake-prone areas, putting more people in harm's way." 
 
The proposal -- authored by Democratic Reps. Ron Klein of Boca Raton and Tim Mahoney of Palm Beach Gardens -- would create a voluntary, market-driven national catastrophe fund designed to lower the cost of insuring homes in areas where the threat of hurricanes, floods and earthquakes can send premiums skyrocketing. It also would make federal loans available to assist in the rebuilding of states hit by natural disasters. 
 
But Swagel warned against "government actions that interfere with well-functioning private insurance markets" and suggested that Florida's state-run insurance fund has artificially suppressed insurance rates, causing private insurers to leave. 
 
His testimony sparked a spirited outcry from Rep. Ginny Brown-Waite, R-Brooksville, who accused the administration of harboring a "bipartisan opposition to anything that's going to help homeowners. 
 
She countered Swagel's comments that the rising cost of insurance in Florida is "a reflection of the cost of risk, not a defect of the market." 
 
"Are you saying people aren't paying enough for insurance," she said, suggesting that if Swagel said that in her district, which extends inland, "I'd like to see you get out of the room alive." 
 
LOW-RISK STATES 
 
In the past, risk pools have run into political opposition from members of Congress, especially in the Senate, from low-risk states. But the bill allows states to stay out of the risk pool if they wish, and Klein said he hopes it will make it more palatable. 
 
But some members of the committee suggested otherwise, saying taxpayers could end up paying the tab. 
Matthew Patrick, a state lawmaker in Massachusetts, however, said homeowners insurance premiums are rising along the coast. 
 
And J.P. Schmidt, Hawaii's insurance commissioner testifying on behalf of the National Association of Insurance Commissioners, said "for those who live in areas where events can be infrequent, yet catastrophic, access to insurance capacity is either unavailable or unaffordable." 
 
'RISK CONSORTIUM' 
 
The bill calls for the creation of a "risk consortium," which states voluntarily could join to pool the risk from state-sponsored insurance funds. The consortium would transfer the risk to private markets through the use of bonds or reinsurance contracts. Any savings realized from spreading the risk would have to be passed along to consumers in the form of lower premiums. 
 
Klein said there is increasing evidence that the capital markets are interested and Dan Ozizmir, a managing director with reinsurance giant Swiss Re, said that in the company's view, "the market will continue to grow and will assist in growing insurance capacity." 
 
A Senate bill that would create a commission to study a national catastrophe fund has the preliminary approval of the Senate Banking Committee, which is hoping to attach the measure to a larger bill that would reform the nation's flood insurance program. 
 
A House committee in late July approved a bill that would expand the national flood insurance program to cover wind damage. That bill, too, faces considerable opposition.