Homeowners Defense Act

Yesterday, I wrote about Hillary attempting to earn brownie points among Floridians by sponsoring the Senate version of the Homeowners Defense Act.

Well, I notice that the House has passed its version. From Business Insurance:

The House of Representatives has approved a bill that create a federal backstop for state catastrophe insurance pools.

The Homeowners’ Defense Act of 2007, which passed on a 258-to-155 vote Thursday, would create a National Catastrophe Risk Consortium. The entity would, among other things, issue securities and other financial instruments linked to the catastrophe risk in the capital markets.

As one might expect, there’s some criticism blossoming from within the industry. Still quoting BI:

“This legislation falls short in trying to address the problems in coastal insurance markets,” said Marc Racicot, president of the American Insurance Assn. in Washington in a statement issued after the vote. “It will not generate new private-sector insurance, reinsurance or capital market capacity, and is likely to encourage states to create thinly financed, state-run reinsurance facilities that will displace the private market and require a federal government bailout in the event of a catastrophe.”

“Government is not the right solution,” said Frank Nutter, president of the Washington-based Reinsurance Assn. of America, in a statement issued Friday. “The capital markets and the insurance/reinsurance industry have demonstrated their ability to meet natural catastrophe risk transfer needs of insurers and consumers when market dynamics are allowed to work. This legislation will do nothing more than disrupt the marketplace.”

Maybe it’s just a bit of pro-consumerism that’s briefly blossomed in me after my, um, chat with the health insurance folks earlier today, but there are times that I think industry reps are critical of consumer advocates and anti-insurance legislators out of pure habit more than anything else.

True, I have faith in the private sector doing, over the long term, a better job than government at many things, insurance included. However, the bits and pieces I’ve heard about the proposals seem like cause for very cautious optimism…and that, in turn, causes industry criticism to sound a little like folks resisting change because change is hard (and potentially disrupts market share).

You’d think that an entrepreneur or two would find ways to take insurer/reinsurer expertise and craft new products or solutions to take advantage of the potential new market.

Ours is an industry for which progress is achieved by being dragged forward, kicking and screaming.

A press release from Senator Clinton’s office, via All American Patriots:

Senators Hillary Rodham Clinton (D-NY) and Bill Nelson (D-FL) today introduced the “Homeowners Defense Act of 2007,” an innovative proposal to pool and diversify catastrophe risk to make disaster insurance for hurricanes, floods, fires and other natural disasters more available and affordable for American homeowners. The Clinton-Nelson bill is companion legislation in the Senate to the bill introduced in the House of Representatives by Congressmen Ron Klein (FL-22) and Tim Mahoney (FL-16).[...]

The Homeowners Defense Act focuses on stabilizing the catastrophe insurance market by expanding the private sector’s capacity to cover a natural disaster and helping states to better manage risk. The Clinton-Nelson bill establishes a Catastrophic Risk Consortium, a non-Federal entity, which states will have the option to join. States will participate by allowing their state-sponsored insurance funds to voluntarily bundle their catastrophic risk with one another in the Consortium. The risk would then be transferred to the private markets through catastrophe bonds issued by the consortium and negotiated reinsurance contracts. The bill also provides for federal loans to states impacted by severe natural disasters to help ensure a state fund’s liquidity in the event of a disaster. This bill will help facilitate and enhance homeowners’ access to insurance, which may ultimately result in lower insurance rates.

I thought I had mentioned the House equivalent bill previously, but sadly my Google-fu is lacking today, and I’m not finding that post. (Or, I could be imagining a post I didn’t actually write. It’s been a fun day today.)

If I had written the post I thought I wrote, I would have noted before that I find the idea intriguing. It’s voluntary, and it’s promoting some spreading of risk among residual pooling mechanisms that already exist, as well as facilitating alternative means to ensure the availability of capital to support capacity. It strikes me as a far better of an idea than attempting to require subsidization of Gulf and Atlantic wind risk by folks in the Great Plains by federal decree.

Also, I can’t help but notice that Hillary seems to be rather vocal in supporting a bill that presumably would attract the interest of voters in Florida…and that the major Democratic candidates for President are boycotting campaigning in Florida due to intraparty squabbling over primary scheduling.

Surely, that’s not coincidence.