I 112th CONGRESS 2d Session H. R. 6477 IN THE HOUSE OF REPRESENTATIVES September 20, 2012 Mr. Sires introduced the following bill; which was referred to the Committee on Financial Services, and in addition to the Committee on Transportation and Infrastructure, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned A BILL To strengthen America’s financial infrastructure, by requiring pre-funding for catastrophe losses using private insurance premium dollars to protect taxpayers from massive bailouts, and to provide dedicated funding from insurance premiums to improve catastrophe preparedness, loss prevention and mitigation, and to improve the availability and affordability of homeowners insurance coverage for catastrophic events, and for other purposes.

1.

Short title and table of contents

(a)

Short title

This Act may be cited as the Taxpayer Protection Act of 2012. (b)

Table of contents

The table of contents for this Act is as follows: Sec. 1. Short title and table of contents. Sec. 2. Findings and purpose. Sec. 3. Definitions. TITLE I—TAXPAYER PROTECTION, PRE-FUNDED CATASTROPHE RECOVERY, AND MARKET STABILIZATION Sec. 101. National Commission on Natural Catastrophe Preparation and Protection. Sec. 102. Pre-funded and privately financed catastrophe recovery program. Sec. 103. Post-catastrophe market stabilization program for liquidity loans. Sec. 104. Termination. TITLE II—DISASTER READINESS, CITIZEN AND COMMUNITY PREPAREDNESS, AND MITIGATION Sec. 201. National Readiness, Preparedness, and Mitigation Committee.

2.

Findings and purpose

(a)

Findings

The Congress finds the following: (1)The economy of the United States, the American taxpayers, and all homeowners need to be better prepared for, and more protected from, major natural catastrophes. (2)Taking into consideration the current economic and fiscal challenges facing the United States, it is more important than ever to fortify our Nation’s financial infrastructure to be fully prepared for major natural catastrophes and to mitigate the risk of catastrophe as much as possible. (3)In the past, when a natural catastrophe eclipsed the ability of the private industry or a State to manage the loss, or individuals were uninsured or underinsured, the Federal Government has stepped in to provide the funding and services needed for recovery. (4)The costs of such Federal bailouts have been borne by all taxpayers, thereby creating a disincentive to fully prepare for catastrophe and unfairly burdening citizens who live in lower risk communities. (5)Historically, the budget for Federal Government has assumed there will be no natural disasters, and this lack of pre-funding for catastrophe contributed substantially to annual budget deficits and growing national debt. (6)The Budget Control Act of 2011 ends an era of unbudgeted recovery assistance and authorizes a fixed level of annual funding for disaster relief. (7)The amount of future disaster relief funding is capped at the average amount spent on natural disasters during the previous 10 years with the high and low years removed. (8)By removing the high and low years, the law now caps disaster spending at a level that is less than 60 percent of the amount spent on disaster relief during the previous 10 years. (9)Natural catastrophes will continue to occur, and the exposure to catastrophe risk is growing. Scientists warn that future catastrophes will inevitably cause losses far in excess of prior events, and these losses could exceed the limited capacity in the private market to cover claims and remain viable to insure properties after massive catastrophic events. (10)In 2011, the earthquake centered in Virginia that shook the East Coast and Hurricane Irene provided powerful reminders that natural catastrophes can strike unexpectedly and severely damage areas not thought to be at high risk. (11)Losses caused by natural catastrophes in 2011 reached record levels and affected areas throughout the country. (12)To successfully transition to a more limited Federal role in post-event disaster funding, communities must be better prepared for future catastrophe, the risk of damage from natural catastrophes must be mitigated and individuals must have greater access to private market protection against catastrophe risk. (13)Currently, neither the government, nor communities, nor the private sector are accumulating sufficient resources or procuring sufficient coverage to recover from inevitable future natural catastrophes. (14)The private insurance market does not have sufficient capacity to efficiently address the timing risk presented by major natural catastrophes, and there is no guarantee that the level of capacity that does exist will continue to be available from one year to the next or that consumers have the resources to adjust to significant price swings in the cost of the capital for available capacity. (15)Disruptions in insurance availability and affordability will continue to harm economic activity in States exposed to major catastrophes and place significant burdens on residents of these States. (16)Consumers in many areas around the country cannot find homeowners insurance in the private market, and affordability and availability challenges will grow dramatically when the next major catastrophe strikes. (17)Hurricane Katrina and other recent catastrophes confirm that the economic harm from natural catastrophes has a disproportionate impact upon the poor and middle class. (18)A new public-private partnership approach to deal more effectively with major natural catastrophes would more efficiently leverage the public sector and establish a limited, less expensive, more focused role for government while also maximizing the capabilities of the private sector. (19)A privately funded backstop can provide more protection at lower cost for consumers while also strengthening America’s financial infrastructure to deal with natural catastrophes by increasing capacity and providing more market stability after a catastrophe. (20)Cost savings can lower premiums for consumers and be used to encourage better prevention and mitigation in lieu of post-event bailouts. (21)A financial backstop can be structured to be fully funded to protect taxpayers from bailouts and insurance policyholders from subsidies upon which the current system relies. (22)A public-private partnership model, with an appropriately structured backstop, can protect against the timing risk presented by major natural catastrophes, spread risk more broadly, and enable private direct insurers to underwrite and price insurance for large-scale catastrophes more efficiently and with less risk of insolvency or financial distress while making insurance more available and affordable for consumers. (23)Private market reinsurers could continue to provide coverage for direct insurers and could participate in providing capacity to the financial backstop. (24)For the majority of Americans their home is their single biggest asset and protecting that investment is important to the economic health of millions of Americans, to social stability; and to the health of the banking system and broader economy. (25)The financial crisis of 2008 confirms the value of taking action in advance to strengthen America’s financial infrastructure through a privately funded backstop rather than waiting for a future crisis or collapse to take emergency action in the form of bailouts. (26)It is in the best interests of the Nation to take responsible action now to begin to build a financial backstop that will help protect a recovering American economy and mitigate the economic or financial shock that could result from a major catastrophic event. (b)

Purposes

The purposes of this Act are— (1)to establish a fully funded program for catastrophe losses to strengthen the financial infrastructure of the United States; (2)to protect taxpayers from bailouts and subsidies related to the financing of post-catastrophe disaster relief; (3)to develop a public-private partnership that maximizes the private market capacity to directly provide insurance to consumers with a comprehensive and integrated plan to help homeowners better prepare for and recover from the damages caused by natural catastrophes; (4)to encourage individuals and communities to adopt mitigation and prevention measures that reduce losses from such catastrophes; and (5)to expedite the payment of claims and better assist in the financial recovery from such catastrophes.

3.

Definitions

For purposes of this Act, the following definitions shall apply: (1)

Actuarially sound

The term actuarially sound means, with respect to premiums, that premiums are determined according to principles of actuarial science to be adequate, but not excessive, in the aggregate to pay current and future obligations, including the expected annualized cost of all claims, loss adjustment expenses, and all administrative costs. (2)

Covered event

The term covered event means the occurrence of one or more of the perils specified in section 102(c) that causes a loss or series of losses. (3)

Covered State

The term covered States means, with respect to a State plan, a State covered by the plan. (4)

Eligible State plan

The term eligible State plan means a State plan or multi-State plan that meets the requirements of section 102(d). (5)

Emergency response providers

The term emergency response providers has the meaning given such term in section 2 of the Homeland Security Act of 2002 (6 U.S.C. 101). (6)

Fund

The term Fund means the Catastrophe Preparedness Fund established under section 102(g). (7)

Insured loss

The term insured loss means any loss and associated loss adjustment expense insured or reinsured by an eligible State plan. (8)

Liquidity loan

The term liquidity loan means a loan to an eligible State plan made under section 103. (9)

Multi-State plan

The term multi-State plan means a State plan described in paragraph (12)(A)(ii) of this section. (10)

Secretary

The term Secretary means the Secretary of the Treasury except as specifically provided otherwise. (11)

State

The term State includes the several States of the United States, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, the United States Virgin Islands, and American Samoa, and any other territory or possession of the United States. (12)

State plan

The term State plan means a plan that— (A)is created or administered by— (i)a single State; or (ii)two or more States; and (B)provides insurance or reinsurance protection to address natural catastrophe preparedness and protection, and in the case of a plan described in subparagraph (A)(ii), provides such protection as part of a program covering multiple States.