RISK MANAGERS can be forgiven for not paying much attention to recent congressional maneuvering on the Homeowners' Defense Act.

After all, the bill would have no direct effect on commercial insurance. Instead, it would allow state-sponsored insurance funds to bundle their catastrophic risks in a new National Catastrophe Risk Consortium, which could issue financial instruments linked to the risks or be reinsured through its members. The U.S. government would guarantee state funds' bond obligations.

The proposal would apply solely to personal lines insurance, aiming to guarantee the availability of affordable homeowners coverage.

While we understand the position of the measure's supporters, we question whether it's necessary and believe it could be counterproductive.

First, there's no indication that the market has failed to the extent needed to justify creating a new federal obligation. Private property insurance can be costly, but the U.S. government cannot make additional financial promises as the federal deficit spirals to record levels. Second, and more troubling, is that the proposed facility could encourage construction where it's least justified—in catastrophe-prone areas. Higher concentrations of property values would increase the chances that the next hurricane will be more expensive and damaging than the last.

As such, the facility could directly affect commercial policyholders. They would face higher coverage costs and tax liabilities if the U.S. government had to step in. The best way to prevent that is to keep the federal government out of the insurance guarantee business in the first place.