110 HR 330 IH: Homeowners’ Insurance Availability Act of
U.S. House of Representatives
2007-01-09
text/xml
EN
Pursuant to Title 17 Section 105 of the United States Code, this file is not subject to copyright protection and is in the public domain.
1.Short title and table of
contents
(a)This Act may be cited as the Homeowners’ Insurance Availability Act of
2007
.
(b)The table of contents for this Act is as follows:
Sec. 1. Short title and table of
contents.
Sec. 2. Program authority.
Sec. 3. Qualified lines of
coverage.
Sec. 4. Covered perils.
Sec. 5. Auction of contracts for
reinsurance coverage.
Sec. 6. Minimum level of retained losses
and maximum Federal liability.
Sec. 7. Disaster Reinsurance
Fund.
Sec. 8. National Commission on Catastrophe
Risks and Insurance Loss Costs.
Sec. 9. Definitions.
Sec. 10. Regulations.
Sec. 11. Termination.
Sec. 12. Annual study of cost and
availability of disaster insurance and program need.
2.
(a)The Secretary of the Treasury shall carry out a program
under this Act to make reinsurance coverage available through contracts for
reinsurance coverage under section 5, which shall be made available for
purchase by purchasers under section 5(a)(1) only through auctions under
section 5(a).
(b)The
program shall be designed to make reinsurance coverage under this Act available
to improve the availability of homeowners’ insurance for the purpose of
facilitating the pooling, and spreading the risk, of catastrophic financial
losses from disasters and to improve the solvency of homeowners’ insurance
markets.
(c)Under the program under this Act, the Secretary shall
offer reinsurance coverage through contracts with covered purchasers, which
contracts—
(1)shall not displace
or compete with the private insurance or reinsurance markets or capital
markets;
(2)shall minimize the
administrative costs of the Federal Government; and
(3)shall provide
coverage based solely on insured losses within the region established pursuant
to section 5(a) for which the auction is held.
3.Qualified lines
of coverageEach contract for
reinsurance coverage made available under this Act shall provide insurance
coverage against residential property losses to homes (including dwellings
owned under condominium and cooperative ownership arrangements) and the
contents of apartment buildings.
4.Each contract for
reinsurance coverage made available under this Act shall cover losses that are
proximately caused by—
(1)earthquakes;
(2)perils ensuing from
earthquakes, including fire and tsunamis; and
(3)tropical cyclones
having maximum sustained winds of at least 74 miles per hour, including
hurricanes and typhoons.
The Secretary
shall, by regulation, define the disaster perils under this section.5.Auction of
contracts for reinsurance coverage
(a)Auction program
requirementsThe Secretary shall carry out a program to auction
contracts for reinsurance coverage under this Act made available pursuant to
section 2(a), which shall comply with the following requirements:
(1)The
auction program shall provide for auctioning all contracts made available under
this section to private insurers and reinsurers, State insurance and
reinsurance programs, and other interested entities.
(2)The auction program shall provide for auctions on a
regional basis. The Secretary shall divide the States into not less than 6
regions for the purpose of holding such regional auctions, which shall include
separate regions for all or part of the State of California and all or part of
the State of Florida. In determining the boundaries for such regions, the
Secretary shall consider which areas have greater risks of losses from covered
perils and which areas have lesser risks of losses from covered perils, and
shall attempt not to combine those different types of areas. Auctions for each
region shall be conducted not less often than annually.
(3)In auctioning contracts under this section for reinsurance
coverage, the Secretary shall set, for each contract, a reserve price that is
the minimum price at which the contract may be sold, based upon the
recommendations of the Commission. The reserve price shall be determined on the
basis of the following components:
(A)A risk-based price, which shall reflect the anticipated
annualized payout of the contract according to the actuarial analysis and
recommendations of the Commission.
(B)A risk load in an amount that is not less than the
risk-based price under subparagraph (A).
(C)A sum sufficient to provide for the operation of the
Commission and the administrative expenses incurred by the Secretary in
carrying out this section.
(D)An
adjustment based on an actuarial analysis that takes into account any efforts
that are being made to reduce losses to property in the region in which the
contract is being sold.
(4)Price gouging
protectionsThe auction program may provide reinsurance coverage
for losses incurred only for property located in a State for which the State
entity authorized to make such determinations has certified to the Secretary
that there are in effect, in such State, laws or regulations sufficient to
prohibit price gouging, during the term of such reinsurance coverage, in any
disaster area located within the State.
(5)
(A)The auction program shall require each purchaser of a
contract, as a condition of such purchase, to contribute an amount, that the
Secretary (in consultation with the Director of the Federal Emergency
Management Agency) shall establish and which shall not exceed 5 percent of the
price paid for the contract, to communities that—
(i)are
located in the State in which the reinsurance coverage under the contract is
provided (or in the case of multiple States, among such States, as determined
by the Secretary);
(ii)are
designated by the Director of the Federal Emergency Management Agency and the
appropriate emergency management agency for the State as Project Impact
communities (for purposes of the pre-disaster mitigation program of such
Agency); and
(iii)are
participating in such programs or initiatives as the Secretary may require that
provide incentives for construction of structures and communities that are
resistant to damage from covered perils, which shall include the Building Code
Effectiveness Grading Schedule of the Insurance Services Office.
(B)Amounts contributed to communities pursuant to the
requirement under subparagraph (A) shall be used only—
(i)for
activities to reduce losses from covered perils to properties covered under the
reinsurance contract purchased under the auction program that are located in
such communities; and
(ii)in
accordance with such requirements as the Secretary, in consultation with the
Director of the Federal Emergency Management Agency and appropriate State
agencies, shall establish to ensure cost-effective use of such amounts.
(C)The
Secretary, in consultation with the Director of the Federal Emergency
Management Agency, shall establish requirements for allocation of contributions
among communities eligible under subparagraph (A) to receive such
contributions.
(6)The Secretary may establish such other requirements
for the auction program as the Secretary considers necessary to carry out this
Act.
(b)Contract terms
and conditionsEach contract for reinsurance coverage under this
Act shall include the following terms and conditions:
(1)The
term of each such contract shall not exceed 1 year or such other term as the
Secretary may determine.
(2)The
contract shall at all times be fully transferable, assignable, and
divisible.
(3)The contract shall provide that the covered purchaser
may receive a payment for losses covered under the contract if, under a process
specified in the contract, the Secretary determines that the insurance industry
will, as a result of a single event of a covered peril, incur losses within the
coverage area for the region established under subsection (a)(2) for which the
contract was auctioned that are covered by one or more lines of insurance under
section 4 in an aggregate amount, for such event, greater than the level of
retained losses specified in section 6.
(4)The contract shall cover any eligible losses from one or
more covered events that may occur during the term of the contract and shall
provide that if multiple events occur, the retained losses requirement under
paragraph (3) shall apply to each event.
(5)Additional
contract optionThe contract shall provide that the purchaser of
the contract may, during the term of such original contract, purchase
additional contracts from among those offered by the Secretary at the beginning
of the term, subject to the limitations under section 6, at the prices at which
such contracts were offered at the beginning of the term, prorated based upon
the remaining term as determined by the Secretary. Such additional contracts
shall provide coverage beginning on a date 15 days after the date of purchase
but shall not provide coverage for losses for an event that has already
occurred.
(6)Submission of
informationThe contract shall include terms that—
(A)require the
purchaser to notify the Secretary of any sale, transfer, assignment, or
division of the contract or any interest in the contract, identify the interest
involved, and identify the price paid or compensation provided; and
(B)authorize the
disclosures required under subsection (c)(2).
(7)The contract shall contain such other terms as the
Secretary considers necessary to carry out this Act and to ensure the long-term
financial integrity of the program under this Act.
(c)
(1)For each fiscal year, the Comptroller General of the
United States shall conduct an audit of prices for contracts made available
under the auction program under this section during such fiscal year that
determines—
(A)the reserve prices
established for such contracts;
(B)the prices paid
for such contracts that are purchased;
(C)the prices paid,
or compensation provided, in any sales, transfers, assignments, or divisions of
any such contracts (or any interests in such contracts) in the secondary market
or to any third party; and
(D)pursuant to the
information obtained under subparagraphs (A) through (C), the appropriate
reserve prices for such contracts that are to be made available in the
succeeding fiscal year.
(2)The Secretary shall provide any information referred
to in subsection (b)(6) that is obtained by the Secretary to the Comptroller
General, the Director of the Congressional Budget Office, and the Director of
the Office of Management and Budget, and shall make such information publicly
available. The Secretary, the Director of the Congressional Budget Office, the
Director of the Office of Management and Budget shall each take such
information into consideration in preparing any budget, report, estimate, or
recommendation to the extent it relates to the auction program under this
section, and in any determinations relating to the Budget of the United States
or the concurrent resolution on the budget (as such term is defined in section
3 of the Congressional Budget Act of 1974). The Secretary shall take such
information into consideration in establishing reserve prices for contracts
made available under this section.
(d)Private sector
right to participate
(1)Establishment of
competitive procedureThe Secretary shall establish, by
regulation, a competitive procedure under this subsection that provides
qualified entities an opportunity, on a basis consistent with the regional
auction procedure and contract cycle established under this section by the
Secretary, to offer to provide, in lieu of reinsurance coverage under this Act
made available by the Secretary, reinsurance coverage that is substantially
similar to such coverage.
(2)Under the procedure established under this
subsection—
(A)the Secretary shall
establish criteria for private insurers, reinsurers, and capital market
companies, and consortia of such entities to be treated as qualified entities
for purposes of this subsection, which criteria shall require such an entity to
have at all times capital sufficient to satisfy the terms of the reinsurance
contracts and shall include such other industry and credit rating standards as
the Secretary considers appropriate;
(B)not less than 30
days before the beginning of each regional auction during which any reinsurance
coverage under this Act is to be made available, the Secretary shall publish in
the Federal Register the reserve prices and terms for contracts for such
reinsurance coverage that are to be made available during the auction;
(C)the Secretary
shall provide qualified entities a period of not less than 10 days (which shall
terminate not less than 20 days before the beginning of the auction) to submit
to the Secretary a written expression of interest in providing reinsurance
coverage in lieu of the coverage otherwise to be made available under this Act
by the Secretary;
(D)the Secretary
shall provide any qualified entity submitting an expression of interest during
the period referred to in subparagraph (C) a period of not less than 20 days
(which shall terminate before the commencement of the auction) to submit to the
Secretary an offer to provide, in lieu of the reinsurance coverage under this
Act otherwise to be made available under an auction under this section,
coverage that is substantially similar to such coverage;
(E)if the Secretary
determines that an offer submitted during the period referred to in
subparagraph (D) is a bona fide offer to provide reinsurance coverage to be
made available during the auction for the same contract cycle and at a reserve
price and terms that are substantially similar to the reserve price and terms
for reinsurance coverage otherwise to be made available at the auction under
this section by the Secretary, the Secretary shall accept the offer (if still
outstanding) and, notwithstanding any other provision of this Act, provide that
the reinsurance coverage provided by such entity in accordance with the offer
shall be made available at the auction; and
(F)if the Secretary
accepts an offer pursuant to subparagraph (E) to make reinsurance coverage
available at the auction, notwithstanding any other provision of this Act, the
Secretary shall reduce, to an equivalent extent, the amount of reinsurance
coverage otherwise to be made available under this Act by the Secretary at the
auction, unless and until the Secretary determines that the entity is not
complying with the terms of the accepted offer.
6.Minimum level of
retained losses and maximum Federal liability
(a)Available levels
of retained lossesIn making reinsurance coverage available under
this Act, the Secretary shall make available for purchase contracts for such
coverage that require the sustainment of retained losses from a single event of
a covered peril (as required under section 5(b)(3) for payment of eligible
losses) in various amounts, as the Secretary, in consultation with the
Commission, determines appropriate and subject to the requirements under
subsection (b) of this section.
(b)Minimum level of
retained losses
(1)Subject to paragraphs (2), (3), and (4) and
notwithstanding any other provision of this Act, a contract for reinsurance
coverage may not be made available or sold under section 5 through a regional
auction unless the contract requires that the insurance industry in the region
for which the auction was conducted sustains a cumulative amount of retained
losses (in covered lines resulting from covered perils) of not less than an
amount, determined by the Secretary in consultation with the Commission, that
is in the range between the amount equal to the eligible loss projected to be
incurred once every 100 years from a single event in the region and the amount
equal to the eligible loss projected to be incurred once every 250 years from
such an event.
(2)Initial
adjustment based on private marketThe Secretary may, before
making contracts for reinsurance coverage under this Act initially available
under section 5, raise the minimum level of retained losses from the amount
required under paragraph (1) for a region to ensure, as determined by the
Secretary, that such contracts comply with the principle under section
2(c)(1).
(3)The Secretary may annually raise the minimum level of
retained losses established under paragraph (1) for a region to reflect, as
determined by the Secretary—
(A)changes in the
capacity of public reinsurance programs or the private insurance and
reinsurance market;
(B)increases in the
market value of properties; or
(C)such other
situations as the Secretary considers appropriate.
The
Secretary shall consider the minimum level of retained losses requirement in
paragraph (1) as a minimum requirement only and shall have full authority,
effective on the date of the enactment of this Act, to establish levels of
required minimum retained losses in any amount greater than the amounts
specified in such paragraph. In making any determination under this paragraph
in the minimum level of retained losses, the Secretary shall establish such
level at an amount such that the program under this Act for making reinsurance
coverage available does not displace or compete with the private insurance or
reinsurance markets or capital markets, as determined by the Secretary after
the Secretary has provided interested parties an opportunity to submit to the
Commission market information relevant to such determination and has provided
the Commission with an opportunity to advise the Secretary regarding such
information and determination.(4)Optional annual
inflationary or exposure adjustmentThe Secretary may, on an
annual basis, raise the minimum level of retained losses established under
paragraph (1) for each region to reflect the annual rate of inflation or growth
in exposures, whichever is greater. Any such raise shall be made in accordance
with an inflation index or exposure index, as appropriate, that the Secretary
determines to be appropriate. The first such raise may be made one year after
contracts for reinsurance coverage under this Act are first made available for
purchase.
(c)Maximum Federal
liability
(1)Notwithstanding any other provision of law, the Secretary
may sell only contracts for reinsurance coverage under this Act in various
amounts which comply with the following requirements:
(A)Estimate of
aggregate liabilityThe aggregate liability for payment of claims
under all such contracts in any single year is unlikely to exceed
$25,000,000,000 (as such amount is adjusted under paragraph (2)).
(B)Eligible loss
coverage soldEligible losses covered by all contracts sold
within a State or region during a 12-month period do not exceed the difference
between the following amounts (each of which shall be determined by the
Secretary in consultation with the Commission):
(i)The
amount equal to the eligible loss projected to be incurred once every 500 years
from a single event in the State or region.
(ii)The
amount equal to the eligible loss projected to be incurred once every 100 years
from a single event in the State or region.
(2)The Secretary shall annually adjust the amount under
paragraph (1)(A) (as it may have been previously adjusted) to provide for
inflation in accordance with an inflation index that the Secretary determines
to be appropriate.
(d)Limitation on
percentage of risk in excess of retained losses
(1)The Secretary may not make available for purchase
contracts for reinsurance coverage under this Act that would pay out more than
50 percent of eligible losses in excess of retained losses for the region for
which the contract was made available.
(2)For
purposes of this subsection, the amount of payout from a reinsurance contract
shall be the amount of eligible losses in excess of retained losses multiplied
by the percentage under paragraph (1).
7.Disaster
Reinsurance Fund
(a)There
is established within the Treasury of the United States a fund to be known as
the Disaster Reinsurance Fund (in this section referred to as the
Fund
).
(b)The
Fund shall be credited with—
(1)amounts received
annually from the sale of contracts for reinsurance coverage under this
Act;
(2)any amounts
borrowed under subsection (d);
(3)any amounts earned
on investments of the Fund pursuant to subsection (e); and
(4)such other amounts
as may be credited to the Fund.
(c)Amounts
in the Fund shall be available to the Secretary only for the following
purposes:
(1)For payments to covered purchasers under contracts for
reinsurance coverage under this Act for eligible losses under such
contracts.
(2)To pay for the operating costs of the Commission.
(3)To pay for the administrative expenses incurred by the
Secretary in carrying out the reinsurance program under this Act.
(4)Upon
termination under section 11, as provided in such section.
(d)
(1)To
the extent that the amounts in the Fund are insufficient to pay claims and
expenses under subsection (c), the Secretary may issue such obligations of the
Fund as may be necessary to cover the insufficiency and shall purchase any such
obligations issued.
(2)For the purpose of purchasing any such obligations,
the Secretary may use as a public debt transaction the proceeds from the sale
of any securities issued under chapter 31 of title 31, United States Code, and
the purposes for which securities are issued under such chapter are hereby
extended to include any purchase by the Secretary of such obligations under
this subsection.
(3)Characteristics
of obligationsObligations issued under this subsection shall be
in such forms and denominations, bear such maturities, bear interest at such
rate, and be subject to such other terms and conditions, as the Secretary shall
determine.
(4)All
redemptions, purchases, and sales by the Secretary of obligations under this
subsection shall be treated as public debt transactions of the United
States.
(5)Any
obligations issued under this subsection shall be repaid, including interest,
from the Fund and shall be recouped from premiums charged for reinsurance
coverage provided under this Act.
(e)If
the Secretary determines that the amounts in the Fund are in excess of current
needs, the Secretary may invest such amounts as the Secretary considers
advisable in obligations issued or guaranteed by the United States.
(f)Prohibition of
Federal fundsExcept for amounts made available pursuant to
subsection (d) of this section and section 8(h), no Federal funds shall be
authorized or appropriated for the Fund or for carrying out the reinsurance
program under this Act.
8.National
Commission on Catastrophe Risks and Insurance Loss Costs
(a)The
Secretary shall establish a commission to be known as the National Commission
on Catastrophe Risks and Insurance Loss Costs.
(b)The
Commission shall meet for the sole purpose of advising the Secretary regarding
the estimated loss costs associated with the contracts for reinsurance coverage
under this Act and carrying out the functions specified in this Act.
(c)The
Commission shall consist of not more than 5 members, who shall be appointed by
the Secretary and shall be broadly representative of the public interest.
Members shall have no personal, professional, or financial interest at stake in
the deliberations of the Commission. The membership of the Commission shall at
all times include at least 1 representative of a nationally recognized consumer
organization.
(d)Treatment of
non-federal membersEach member of the Commission who is not
otherwise employed by the Federal Government shall be considered a special
Government employee for purposes of sections 202 and 208 of title 18, United
States Code.
(e)The Commission may procure temporary and intermittent
services under section 3109(b) of title 5, United States Code, but at a rate
not in excess of the daily equivalent of the annual rate of basic pay payable
for level V of the Executive Schedule, for each day during which the individual
procured is performing such services for the Commission.
(f)Each
member of the Commission who is not an officer or employee of the Federal
Government shall be compensated at a rate of basic pay payable for level V of
the Executive Schedule, for each day (including travel time) during which such
member is engaged in the performance of the duties of the Commission. All
members of the Commission who are officers or employees of the United States
shall serve without compensation in addition to that received for their
services as officers or employees of the United States.
(g)The Commission and the Secretary may solicit loss exposure
data and such other information either deems necessary to carry out its
responsibilities from governmental agencies and bodies and organizations that
act as statistical agents for the insurance industry. The Commission and the
Secretary shall take such actions as are necessary to ensure that information
that either deems is confidential or proprietary is disclosed only to
authorized individuals working for the Commission or the Secretary. No company
which refuses to provide information requested by the Commission or the
Secretary may participate in the program for reinsurance coverage authorized
under this Act, nor may any State insurance or reinsurance program participate
if any governmental agency within that State has refused to provide information
requested by the Commission or the Secretary.
(h)
(1)Authorization of
appropriationsThere are authorized to be appropriated—
(A)$1,000,000 for
fiscal year 2008 for the initial expenses in establishing the Commission and
the initial activities of the Commission that cannot timely be covered by
amounts obtained pursuant to section 5(a)(3)(C), as determined by the
Secretary;
(B)such additional
sums as may be necessary to carry out subsequent activities of the
Commission;
(C)$1,000,000 for
fiscal year 2008 for the initial expenses of the Secretary in carrying out the
program authorized under section 2; and
(D)such additional
sums as may be necessary to carry out subsequent activities of the Secretary
under this Act.
(2)The
Secretary shall provide, to the maximum extent practicable, that an amount
equal to any amount appropriated under paragraph (1) is obtained from
purchasers of reinsurance coverage under this Act and deposited in the Fund
established under section 7. Such amounts shall be obtained by inclusion of a
provision for the Secretary’s and the Commission’s expenses incorporated into
the pricing of the contracts for such reinsurance coverage, pursuant to section
5(a)(3)(C).
(i)The
Commission shall terminate upon the effective date of the repeal under section
11(c).
9.For purposes of this Act, the following
definitions shall apply:
(1)The
term Commission means the National Commission on Catastrophe Risks
and Insurance Loss Costs established under section 8.
(2)The term covered perils means the disaster
perils under section 4.
(3)The term covered purchaser means, with
respect to reinsurance coverage made available under a contract under section
5, the purchaser of the contract auctioned under such section or any subsequent
holder or holders of the contract.
(4)The term disaster area means a geographical
area, with respect to which—
(A)a covered peril
has occurred; and
(B)a declaration that
a major disaster exists, as a result of the occurrence of such peril—
(i)has
been made by the President of the United States; and
(ii)is
in effect.
(5)The term eligible losses means losses in
excess of the sustained and retained losses, as defined by the Secretary after
consultation with the Commission.
(6)The term price gouging means the providing
of any consumer good or service by a supplier for a price that the supplier
knows or has reason to know is greater, by at least the percentage set forth in
a State law or regulation prohibiting such act (notwithstanding any real cost
increase due to any attendant business risk and other reasonable expenses that
result from the major disaster involved), than the price charged by the
supplier for such consumer good or service immediately before the
disaster.
(7)The term qualified lines means lines of
insurance coverage for which losses are covered under section 3 by reinsurance
coverage under this Act.
(8)The term reinsurance coverage under this
Act means coverage under contracts made available under section 5 by the
Secretary.
(9)The
term Secretary means the Secretary of the Treasury.
(10)The
term State means the States of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern
Mariana Islands, Guam, the Virgin Islands, American Samoa, and any other
territory or possession of the United States.
10.The Secretary shall issue any regulations
necessary to carry out the program for reinsurance coverage under this
Act.
11.
(a)Except as provided in subsection (b), the Secretary may
not provide any reinsurance coverage under this Act covering any period after
the expiration of the 10-year period beginning on the date of the enactment of
this Act.
(b)If
upon the expiration of the period under subsection (a) the Secretary, in
consultation with the Commission, determines that continuation of the program
for reinsurance coverage under this Act is necessary to carry out the purpose
of this Act under section 2(b) because of insufficient growth of capacity in
the private homeowners’ insurance market, the Secretary shall continue to
provide reinsurance coverage under this Act until the expiration of the 5-year
period beginning upon the expiration of the period under subsection (a).
(c)Effective
upon the date that reinsurance coverage under this Act is no longer available
or in force pursuant to subsection (a) or (b), this Act (except for this
section) is repealed.
(d)The Secretary shall cover into the General Fund of the
Treasury any amounts remaining in the Fund under section 7 upon the repeal of
this Act.
12.Annual study of
cost and availability of disaster insurance and program need
(a)The Secretary shall, on an annual basis, conduct a study
and submit to the Congress a report on the cost and availability of homeowners’
insurance for losses resulting from catastrophic disasters covered by the
reinsurance program under this Act.
(b)Each
annual study under this section shall determine and identify, on an aggregate
basis—
(1)for each State or
region, the capacity of the private homeowners’ insurance market with respect
to coverage for losses from catastrophic disasters;
(2)for each State or
region, the percentage of homeowners who have such coverage, the disasters
covered, and the average cost of such coverage;
(3)for each State or
region, the progress that private reinsurers and capital markets have made in
providing reinsurance for such homeowners’ insurance;
(4)for each State or
region, the effects of the Federal reinsurance program under this Act on the
availability and affordability of such insurance; and
(5)the appropriate
time for termination of the Federal reinsurance program under this Act.
(c)Each
annual report under this section shall be submitted not later than March 30 of
the year after the year for which the study was conducted.
(d)Commencement of
reporting requirementThe Secretary shall first submit an annual
report under this section not later than 2 years after the date of the
enactment of this Act.