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WASHINGTON Over the objections of Consumers Union, a panel of the House Banking Committee today cleared a broad measure (H.R.219) that provides federal backup to state disaster insurance programs by a vote of 16 to 6.
Consumers Union, publisher of Consumer Reports magazine, is concerned that lawmakers are giving the insurance industry a green light to dump policies in high risk areas, leaving consumers and taxpayers holding the bag. CU has also criticized the measure for not providing consumers in disaster-prone areas with adequate insurance coverage. The measure lacks adequate incentives to reduce losses from disasters exposing taxpayers to needless risk and unwise spending.
"With the peril of El Niño at our doorstep, Congress should be focused on reducing the costs of disasters for consumers and providing more private coverage for homeowners. Instead, this bill would allow insurance companies to shift the costs of some disasters onto the backs of taxpayers," said Mary Griffin, Insurance Counsel for Consumers Union. "The private insurance market should not be permitted to retreat from its traditional role as the primary actor for the cost of these catastrophes."
After the disasters of Hurricane Andrew, Iniki and the Northridge Earthquake, the insurance industry began a campaign to limit their liability by canceling or not renewing policies for homeowners as well as increasing deductibles. The insurance industry also lobbied for the states to take on more of the risk of paying for disasters, so the industry could pay less.
H.R. 219 would establish a federal program that provides $25 billion in insurance coverage to any state pool for losses over $2 billion or losses beyond the capacity of the pool to pay. Under this proposal, if the federal program comes up short, it has the authority to simply borrow from the federal treasury. Currently only three states California, Florida and Hawaii have state pools, but any state pools that are organized in the future would have access to this $25 billion backup account.
According to CU, the primary focus of any disaster insurance policy should be on mitigation of loss, providing incentives to take action before disaster strikes to avoid costly losses. CU expressed disappointment that this bill being championed by some insurance industry lobbyists provides incentives for the private market to off load policies onto state-operated pools with no strong mitigation measures and no guarantees that consumers will have adequate insurance.
