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ATTENTION EDITORS: Local interest in New York, Florida, California and Hawaii
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Press Release |
Contact: 202-462-6262, |
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WASHINGTON -- As the House Banking Committee prepares to complete action on a disaster insurance bill next week, groups representing consumers, taxpayers and environmentalists are sounding an alarm about Congress moving forward on this proposal without obtaining commitments for the insurance industry to take responsibility for providing consumers with the insurance they need.
"We’re extremely concerned that this bill will open the way for insurance companies to dump more people into state pools that provide inadequate and prohibitively expensive insurance," said Mary Griffin, CU’s insurance counsel. "With industry’s surplus escalating to beyond $320 billion, we fail to see why the federal government has to provide what could be a huge bailout for the industry."
The bill, written by Rep. Rick Lazio (NY-2nd Dist.), establishes a federal reinsurance program for state catastrophe pools and private insurers to cover up to $25 billion a year in losses in the event of a natural disaster. The program would cover residential property losses from earthquakes, and ensuing fires, hurricanes and tsunamis.
The Lazio bill has come under fire as a fiscal disaster for consumers which misses an opportunity to provide true reform for the disaster insurance market. First, the legislation exposes taxpayers to enormous costs without requiring insurance companies to provide consumers the coverage they need, according to consumer groups. Secondly, groups say the proposal falls short because it does nothing to address inadequate building codes which are responsible for so much of the economic loss when disaster strikes.
In the wake of huge disasters such as Hurricane Andrew and Iniki and the Northridge earthquake, the insurance industry began a campaign to limit their liability, cutting back and sometimes completely eliminating disaster insurance for many homeowners. They also successfully pushed states to develop state pools, like the California Earthquake Authority, that let them off the hook for providing insurance. Now, although estimates of the insurance industry’s capacity to cover a major disaster range from $25 to $40 billion, insurance lobbyists are eagerly promoting the Lazio bill to shift disaster losses as low as $2 billion to the taxpayer.
So far, only three states have developed catastrophe insurance pools – Florida, California and Hawaii. But the Lazio bill is expected to pressure states to develop pools, even if they are not necessary or block private market solutions.
New York has no catastrophe insurance pool, and a state panel comprised mostly of insurance companies issued a report this February which found the availability of homeowners insurance expanding. In addition, the panel found private market mechanisms to cover the risks, such as the capital markets, are on the rise. These private mechanisms are more attractive to investors than public sector catastrophe funds, according to the panel.
On June 25, when the congressional panel began working on the bill it rejected a sensible amendment designed to give consumers the insurance they need. The measure, drafted by Rep. Maurice Hinchey, (NY-26th Dist.), would have required any insurance company benefiting from the federal program to provide insurance coverage to consumers. With the proposal’s failure, insurance companies remain free to reap the rewards of federal assistance without any obligation to provide adequate insurance to consumers in some disaster prone areas.
When the panel reconvenes to complete action on the bill July 15, consumer groups are urging lawmakers to support amendments drafted by Rep. John LaFalce, (NY-29th Dist.), and Rep. Joseph Kennedy, D-Mass., among others that put the needs of consumers over the desires of the insurance industry.
Rep. LaFalce wants state pools to promote sensible disaster policy as a condition of being eligible for federal dollars. Under his measure, state pools would be obligated to provide adequate insurance protection for consumers, provide seats for citizen representation on the board, and ensure building codes that meet national standards are both in place and enforced if they wanted to be eligible for federal funds. Rep. Kennedy wants Congress to get a study of various proposals on disaster insurance to determine what is best to meet the needs of consumers, taxpayers, the insurance industry and the U.S. Treasury.
"The Federal government should not enact any disaster insurance bill unless prevention of loss is an essential component," said Griffin. "If we’ve learned anything from all the disasters this country has experienced it’s the importance of reducing loss."
Losses from Hurricane Andrew would have been an estimated 40 percent less had building codes been enforced. Currently the bill fails to address the problem of construction in hazard prone areas and risky development in certain disaster prone areas. In addition to putting people and coastal habitats in danger, this lapse also puts taxpayers on the hook for losses that stem from poor construction.
"It’s interesting that an industry that has fought long and hard to avoid federal regulation now comes to the federal government for what could amount to a huge handout," said Griffin who noted that the federal government does not regulate the insurance industry. "At least with the savings and loan bailout, the federal government had regulatory authority over the banking industry."
