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Lobbyists backing a federal natural catastrophe reinsurance program say their decade-long effort is finally paying off and that they are closer than ever to success.
Others disagree. They note that insurance associations are split, with some favoring measures such as a tax law change that would help their members build up catastrophe reserves rather than create a broader government program.
Those favoring a federal reinsurance program in July scored a victory when the House Banking Committee approved H.R. 219, the Homeowners Insurance Availability Act, sponsored by Rep. Rick Lazio, R-N.Y. The bill would provide government reinsurance protection to state-run catastrophe programs and private insurers providing homeowners coverage in catastrophe-prone regions.
The committee's passage of the disaster bill is a "fairly notable event," said Frank Nutter, president of the Reinsurance Assn. of America in Washington. "It's a major committee of the Congress, and it's the furthest any legislative proposal dealing with catastrophes has moved."
For years, lobbying efforts for catastrophe legislation have come and gone under a variety of names and organizations, making limited headway. Now, H.R. 219 backers can point out that the Homeowners Insurance Availability Act had bipartisan support when it garnered a 33-12 vote for approval by the Banking Committee. Additionally, the U.S. Treasury Department appears to support the idea, which calls for the Treasury to administer the program and sell reinsurance contracts to private and state insurers.
Insurance industry supporters of the bill do not expect more significant action on the issue this session. Time is running out on the current congressional session, and the Senate has shown no interest in catastrophe legislation. But the Banking Committee's approval has created the momentum necessary for the issue to be heard in the next session of Congress, the bill's proponents say.
And with weather extremes a current concern, Congress is ready to act on a bill, they argue.
But other lobbyists opposing the bill don't see enough industry consensus for final passage.
Lobbyists favoring H.R. 219 have merely moved the football a little farther down the field, said Peter A. Lefkin, senior vp-government and industry affairs in Washington for Novato, Calif.-based Fireman's Fund Insurance Co. After 20 years of lobbying in Washington, Mr. Lefkin said he is accustomed to claims of progress where there is none. "I've heard the same thing on product liability legislation before, where Washington people measure success from the 10- to the 20-yard line," he said.
"The only thing that is going to move any natural disaster legislation, God forbid, is going to be a natural disaster," Mr. Lefkin said. "The lobbyists are always delighted to measure success and tell their clients they have accomplished something. But this thing is dead."
H.R. 219's proposed reinsurance program would have a trigger point set at the greater of $2 billion or an amount that covers a state's losses for a one-in-100-years event.
But it also states that the trigger has to be above the capacity available in the private insurance and reinsurance market, Mr. Nutter explained. The trigger would drop down to the $2 billion or one-in-100-years loss only if coverage were not available in the private sector. Therefore, the reinsurance program would not compete with private reinsurance or capital markets.
Similar proposals introduced in past years did not contain that language, so the RAA did not support them, Mr. Nutter said.
The association does support H.R. 219, though members don't like the bill's potential impact of increasing state insurance funds, Mr. Nutter said. "Our view is that there is a role for the government because there are potential catastrophe losses that exceed the capacity of the private insurance and reinsurance markets," he said.
The Independent Insurance Agents of America Inc. is a major proponent of H.R. 219, said Thomas C. McCrocklin, the organization's senior Washington representative.
Some agents in several disaster-prone areas continue to complain of unhappy customers because insurers still are reluctant to write in areas subject to catastrophes, Mr. McCrocklin said.
Insurers are "bailing, basically because they are afraid of that megadisaster," he said. "The thought is, if we can bring certainty to these failing markets, then the companies come back and it gives our agents business to write."
Some of the insurance associations that say the trigger level on H.R. 219 is too low are doing so only to kill the bill, Mr. McCrocklin said.
The reinsuring of state insurers and the trigger point are two issues stirring debate among several insurer lobbyists and their associations.
Fireman's Fund opposes an increase in state-mandated pools. There is plenty of capacity in the private market to handle a catastrophe that fits within the $2 billion range, Mr. Lefkin said.
Fireman's Fund would support a catastrophe reinsurance mechanism similar to H.R. 219 but with a much higher trigger, Mr. Lefkin said, of perhaps $25 billion. What really is needed are more mediation efforts and greater underwriting flexibility for private insurers, so they have more freedom in setting conditions such as higher deductibles for catastrophe-prone areas, he said.
While Fireman's Fund opposes H.R. 219, the insurer is not exerting a lot of effort on the issue because it has little chance of passing, Mr. Lefkin said. Fireman's Fund also has good relations with the members of Congress sponsoring and supporting the bill.
"We don't necessarily want to antagonize them," he said.
Some organizations, such as the Alliance of American Insurers, oppose H.R. 219 because it could encourage the creation of more state insurers, said David M. Farmer, senior vp-federal affairs in Washington for the Downers Grove, Ill.-based Alliance.
That essentially amounts to taxpayers subsidizing the problem rather than tackling the problem at its roots, he said. A better tack is to address underlying issues, such as excessive development in coastal areas, land use planning and building codes.
"You don't build houses in the path of hurricanes and then expect other people through the insurance mechanism to subsidize people who choose to purchase homes that are at risk," Mr. Farmer said.
The Alliance represents equal numbers of insurers that write commercial business and those that write personal lines. Commercial insurers have not concerned themselves much with the issue, Mr. Farmer said, while personal lines companies are more focused on it.
The membership of some insurance organizations is divided, several Washington observers said. They point out that American Insurance Assn., of which Fireman's Fund is a member, is not enthusiastic about H.R. 219. Still other key members, including Warren, N.J.-based Chubb Corp., support the bill.
Rick Lawson, vp-federal affairs for the AIA, said association members will convene later this year to discuss the bill because it has gone through several changes. There is no urgency on the matter because the bill will not become law this year, Mr. Lawson said.
"We are just trying to find a federal program that comes in where there are no private market resources to fill the gap," he said.
Some members of the Des Plaines, Ill.-based National Assn. of Independent Insurers would rather see a tax law favorable for building catastrophe reserves, said Chuck Fritzel, the association's assistant vp-government relations in Washington. But currently that concept has no congressional support.
"In the meantime, we think the federal reinsurance idea is a good one," Mr. Fritzel said.
"We do believe it is necessary to have some kind of a backup for mega-natural catastrophe events. The private insurance industry just does not have the capacity to handle these one-in-100-type events," he said.
Although the NAII has some commercial lines members, the organization generally represents personal lines insurers, including several smaller companies. Under the legislation, small single-state insurers could share in the purchase of reinsurance contracts, Mr. Fritzel said.