[Congressional Record Volume 143, Number 1 (Tuesday, January 7, 1997)]
[Extensions of Remarks]
[Pages E69-E70]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




             NATURAL DISASTER PROTECTION AND INSURANCE ACT

                                 ______
                                 

                           HON. BILL McCOLLUM

                               of florida

                    in the house of representatives

                        Tuesday, January 7, 1997

  Mr. McCOLLUM. Mr. Speaker, today I rise to introduce the Natural 
Disaster Protection and Insurance Act. As many of my colleagues know, I 
have taken a great interest in past efforts to reduce the impact of 
catastrophic disasters.
  We know that areas most likely to experience natural disasters, like 
my State of Florida, are currently experiencing population

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growth. As the population grows, demand for insurance grows while 
property values increase. Unless affordable insurance is available to 
these property owners, the Federal Government will continue to face 
open-ended liability. According to a policy paper prepared by the 
Clinton administration, private insurance plays a critical role in 
providing financial protection to living in disaster-prone areas by 
assisting in rebuilding, providing emergency living expenses, and 
reducing income losses. In fact, since 1989, private insurance 
companies have paid claims amounting to more than $30 billion.
  Furthermore, a document issued by the Senate Bipartisan Task Force on 
Funding Disaster Relief in 1994 concluded that, between fiscal year 
1977 and 1993, the Federal Government spent approximately $120 billion 
on natural disasters.
  Mr. Speaker, the problem at hand is that the demand for insurance in 
disaster-prone areas is increasing while the supply of private 
insurance has not kept pace. Many large insurance companies which would 
ordinarily be competing for this premium income in disaster-prone areas 
have stopped writing new policies, while many other small- and medium-
size companies have been reluctant to fill in the resulting gaps due to 
their fear of a truly catastrophic event.
  Prior to the large number of disasters that began in the late 1980's, 
actuarial techniques used by insurance companies were inadequately 
reserving for disasters. For example, losses were estimated on a 30-
year cycle. From late 1950 until the late 1980's few disasters 
occurred. As a result, prices for catastrophic insurance were low 
compared to the actual risk carried by U.S. insurers.
  Due to the lack of insurance coverage available, my home State of 
Florida has embarked on the only path available after the devastation 
of Hurricane Andrew. It has set up the Florida Catastrophe Fund and 
enhanced the Joint Underwriting Association and Windstorm Association, 
both of which are to be the insurers of last resort for those who are 
unable to find insurance. However, no one should be forced to seek 
coverage from a more-expensive, less-responsive Government program, so 
it is incumbent on us as policymakers to find the proper incentives for 
the private sector to write more coverage. Otherwise, I can only 
believe this is a manmade disaster waiting to happen.
  Our experience with State insurance pools demonstrate that States 
cannot go it alone when they are ravaged by destructive occurrences. 
Therefore, I believe action at the Federal level is needed to encourage 
private insurance companies, including smaller and medium-size 
companies, to continue insuring individual homeowners and businesses in 
areas prone by natural disasters. Additionally, action at the Federal 
level can be instrumental in encouraging high-risk areas to better 
prepare for such events.
  Fortunately, a lot of exciting and innovative thought is taking place 
in the insurance industry. For example, many insurance companies are 
teaming up with investment banks to bring capital to their markets by 
securitizing risk and thereby increasing the amount of exposure they 
can carry. This innovative development will help alleviate the shortage 
of insurance for those in disaster-prone areas.
  We, in Congress, should not do anything that stifles this creative 
spirit within the industry. However, we should use the Federal 
Government as a tool to complement the efforts being made by the 
private sector to deal with natural disasters.
  I have introduced a bill that contains three main parts to address 
the issues created by natural disasters. First, this bill provides 
immediate relief in the form of reinsurance for primary insurers 
through a fiscally responsible prefunded bond approach. Currently, 
there is a shortage of mega-catastrophe reinsurance available for 
primary insurance companies and this bill will bring much-needed 
capital to those high excess layers of risk. Second, this bill calls 
for a study regarding the viability of changing the Tax Code to 
encourage insurance companies to reserve for catastrophic events. 
Third, this bill has a mitigation component designed to keep damage 
caused by natural disasters to a minimum when they inevitably strike.
  This bill follows the important bipartisan work on this issue by 
Senator Stevens, Senator Dan Inouye, and former Congressmen Bill 
Emerson and Norm Mineta. I believe this bill creates a framework that 
contains the essential elements to begin the dialog on this important 
issue facing this Nation. Congress needs to take a leadership role in 
bringing together all those involved in natural disaster planning in 
order to reach a resolution to this issue. I plan on working with my 
colleagues, the administration, State, and local governments, and with 
industry to find the right solution for the American people. It is my 
hope that we can hold hearings on this subject soon.

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