Last week, the United States House of Representatives passed the Homeowners’ Defense Act of 2007 by a vote of 258-155, a day after Senators Hillary Rodham Clinton and Bill Nelson introduced companion legislation in the Senate. We have previously reported on the Act here and here.
The Act would create a National Catastrophic Risk Consortium (the "Consortium") that would manage a fund that states with catastrophe funds could access after the state's catastrophe fund has been depleted. The Consortium's fund would be financed primarily through issuing securities to private investors, who would be entitled to receive their original investment plus interest after the contract period. The Consortium would also be responsible for negotiating reinsurance contracts. Participation by states would be completely optional.
The Bush administration has already stated that it would veto the Act. Additionally, the Reinsurance Association of America (“RAA”) has been highly critical of the proposed legislation. According to Franklin W. Nutter, President of the RAA, “this legislation will do nothing more than disrupt the marketplace,” and “what these bills ignore is that homeowners in each part of the country pay insurance premiums based on their local risk, not risk to natural catastrophes in other parts of the country.” Mr. Nutter does not think the Act will be successful in achieving its goals, because homeowners and taxpayers in non-coastal areas will not want to pay premiums based on “the risk others have chosen to take.”
We will continue to monitor the progress and provide updates of the Homeowners’ Defense Act of 2007 at InsureReinsure.com