On May 21, 2009, Representative Ron Klein (D-FL) reintroduced the Homeowners’ Defense Act of 2009, H.R. 2555 (the "Act"), which would allow states to join a national catastrophe insurance pool and would potentially reduce the cost and improve the availability of homeowners’ insurance in Florida and in other states. As we reported here, the Act is similar to the legislation previously passed in the House, but failed to gain Senate support in 2007 and 2008.
The Act would create the National Catastrophe Risk Consortium, which would serve to manage a fund that states would be able to access after the state’s catastrophe fund has been depleted, thus transferring a portion of catastrophic risk. The Consortium would serve as a conduit issuer of cat bonds on behalf of participating states, but would not take actual possession of any bond proceeds.
In supporting the Act, Representative Klein maintains that more than thirty states would be eligible to pool their risk regarding natural disasters, which should save taxpayers money. And while the Act is supported by the Independent Insurance Agents and Brokers of America, it still faces opposition from the Senate as well as other groups, such as Americans for Smart National Catastrophe Policy ("ASMCP"). ASMCP issued a statement citing its concern that a federal catastrophe backstop of this mature may have a negative impact on the market by decreasing the availability of insurance and imposing significant costs to taxpayers.
Other issues regarding the Act have been cited as contrary to the Obama administration’s goal of reducing the Terrorism Risk Insurance Program’s budget. For example, the Act would establish a debt guarantee program that would authorize the U.S. Treasury Department to guarantee debt issued by eligible states to assist in their financial recovery from natural catastrophes as well as allow the U.S. Treasury Department to write reinsurance contracts covering catastrophic-level events.
Earlier this month, the Act was referred to the House Committee of Financial Services for further review. We will continue to monitor the progress of the Act and provide updates of the Act at InsureReinsure.com.