[Congressional Record Volume 152, Number 67 (Thursday, May 25, 2006)]
[Senate]
[Pages S5237-S5242]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. NELSON of Florida:
  S. 3117. A bill to establish a program to provide more protection at 
lower cost through a national backstop for State natural catastrophe 
insurance programs to help the United States better prepare for and 
protect its citizens against the ravages of natural catastrophes, to 
encourage and promote mitigation and prevention for, and recovery and 
rebuilding from such catastrophes, to better assist in the financial 
recovery and rebuilding from such catastrophes, and to develop a 
rigorous process of continuous improvement; to the Commitment on 
Banking, Housing, and Urban Affairs.

                                S. 3117

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Homeowners 
     Protection Act of 2006''.
       (b) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1. Short title; table of contents.
Sec. 2. Congressional findings.
Sec. 3. National Commission on Catastrophe Preparation and Protection.
Sec. 4. Program authority.
Sec. 5. Qualified lines of coverage.
Sec. 6. Covered perils.
Sec. 7. Contracts for reinsurance coverage for eligible State programs.
Sec. 8. Minimum level of retained losses and maximum Federal liability.
Sec. 9. Consumer Hurricane, Earthquake, Loss Protection (HELP) Fund.
Sec. 10. Regulations.
Sec. 11. Termination.
Sec. 12. Annual study concerning benefits of the Act.
Sec. 13. GAO study of the National Flood Insurance Program and 
              hurricane-related flooding.
Sec. 14. Definitions.

     SEC. 2. FINDINGS.

       Congress finds that--

[[Page S5238]]

       (1) America needs to take steps to be better prepared for 
     and better protected from catastrophes;
       (2) the hurricane seasons of 2004 and 2005 are startling 
     reminders of both the human and economic devastation that 
     hurricanes, flooding, and other natural disasters can cause;
       (3) if a repeat of the deadly 1900 Galveston hurricane 
     occurred again it could cause thousands of deaths and over 
     $36,000,000,000 in loss;
       (4) if the 1906 San Francisco earthquake occurred again it 
     could cause thousands of deaths, displace millions of 
     residents, destroy thousands of businesses, and cause over 
     $400,000,000,000 in loss;
       (5) if a Category 5 hurricane were to hit Miami it could 
     cause thousands of deaths and over $50,000,000,000 in loss 
     and devastate the local and national economy;
       (6) if a repeat of the 1938 ``Long Island Express'' were to 
     occur again it could cause thousands of deaths and over 
     $30,000,000,000 in damage, and if a hurricane that strong 
     were to directly hit Manhattan it could cause over 
     $150,000,000,000 in damage and cause irreparable harm to our 
     Nation's economy;
       (7) a more comprehensive and integrated approach to dealing 
     with catastrophes is needed;
       (8) using history as a guide, natural catastrophes will 
     inevitably place a tremendous strain on homeowners' insurance 
     markets in many areas, will raise costs for consumers, and 
     will jeopardize the ability of many consumers to adequately 
     insure their homes and possessions;
       (9) the lack of sufficient insurance capacity and the 
     inability of private insurers to build enough capital, in a 
     short amount of time, threatens to increase the number of 
     uninsured homeowners, which, in turn, increases the risk of 
     mortgage defaults and the strain on the Nation's banking 
     system;
       (10) some States have exercised leadership through 
     reasonable action to ensure the continued availability and 
     affordability of homeowners' insurance for all residents;
       (11) it is appropriate that efforts to improve insurance 
     availability be designed and implemented at the State level;
       (12) while State insurance programs may be adequate to 
     cover losses from most natural disasters, a small percentage 
     of events is likely to exceed the financial capacity of these 
     programs and the local insurance markets;
       (13) a limited national insurance backstop will improve the 
     effectiveness of State insurance programs and private 
     insurance markets and will increase the likelihood that 
     homeowners' insurance claims will be fully paid in the event 
     of a large natural catastrophe and that routine claims that 
     occur after a mega-catastrophe will also continue to be paid;
       (14) it is necessary to provide a national insurance 
     backstop program that will provide more protection at an 
     overall lower cost and that will promote stability in the 
     homeowners' insurance market;
       (15) it is the proper role of the Federal Government to 
     prepare for and protect its citizens from catastrophes and to 
     facilitate consumer protection, victim assistance, and 
     recovery, including financial recovery; and
       (16) any Federal reinsurance program must be founded upon 
     sound actuarial principles and priced in a manner that 
     encourages the creation of State funds and maximizes the 
     buying potential of these State funds and encourages and 
     promotes prevention and mitigation, recovery and rebuilding, 
     and consumer education, and emphasizes continuous analysis 
     and improvement.

     SEC. 3. NATIONAL COMMISSION ON CATASTROPHE PREPARATION AND 
                   PROTECTION.

       (a) Establishment.--The Secretary of the Treasury shall 
     establish a commission to be known as the National Commission 
     on Catastrophe Preparation and Protection.
       (b) Duties.--The Commission shall meet for the purpose of 
     advising the Secretary regarding the estimated loss costs 
     associated with the contracts for reinsurance coverage 
     available under this Act and carrying out the functions 
     specified in this Act, including--
       (1) the development and implementation of public education 
     concerning the risks posed by natural catastrophes;
       (2) the development and implementation of prevention, 
     mitigation, recovery, and rebuilding standards that better 
     prepare and protect the United States from catastrophes; and
       (3) conducting continuous analysis of the effectiveness of 
     this Act and recommending improvements to the Congress so 
     that--
       (A) the costs of providing catastrophe protection are 
     decreased; and
       (B) the United States is better prepared.
       (c) Members.--
       (1) Appointment and qualification.--The Commission shall 
     consist of 9 members, as follows:
       (A) Homeland security member.--The Secretary of Homeland 
     Security or the Secretary's designee.
       (B) Appointed members.--8 members appointed by the 
     Secretary, who shall consist of--
       (i) 1 individual who is an actuary;
       (ii) 1 individual who is employed in engineering;
       (iii) 1 individual representing the scientific community;
       (iv) 1 individual representing property and casualty 
     insurers;
       (v) 1 individual representing reinsurers;
       (vi) 1 individual who is a member or former member of the 
     National Association of Insurance Commissioners; and
       (vii) 2 individuals who are consumers.
       (2) Prevention of conflicts of interest.--Members shall 
     have no personal or financial interest at stake in the 
     deliberations of the Commission.
       (d) Treatment of Non-Federal Members.--Each 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) Experts and Consultants.--
       (1) In general.--The Commission may procure temporary and 
     intermittent services from individuals or groups recognized 
     as experts in the fields of meteorology, seismology, 
     vulcanlogy, geology, structural engineering, wind 
     engineering, and hydrology, and other fields, 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.
       (2) Other experts.--The Commission may also procure, and 
     the Congress encourages the Commission to procure, experts 
     from universities, research centers, foundations, and other 
     appropriate organizations who could study, research, and 
     develop methods and mechanisms that could be utilized to 
     strengthen structures to better withstand the perils covered 
     by this Act.
       (f) Compensation.--
       (1) In general.--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.
       (2) Federal employees.--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) Obtaining Data.--
       (1) In general.--The Commission and the Secretary may 
     solicit loss exposure data and such other information as 
     either the Commission or the Secretary deems necessary to 
     carry out its responsibilities from governmental agencies and 
     bodies and organizations that act as statistical agents for 
     the insurance industry.
       (2) Obligation to keep confidential.--The Commission and 
     the Secretary shall take such actions as are necessary to 
     ensure that information that either deems confidential or 
     proprietary is disclosed only to authorized individuals 
     working for the Commission or the Secretary.
       (3) Failure to comply.--No State insurance or reinsurance 
     program may participate if any governmental agency within 
     that State has refused to provide information requested by 
     the Commission or the Secretary.
       (h) Funding.--
       (1) Authorization of appropriations.--There is authorized 
     to be appropriated--
       (A) $10,000,000 for fiscal year 2007 for the--
       (i) initial expenses in establishing the Commission; and
       (ii) initial activities of the Commission that cannot 
     timely be covered by amounts obtained pursuant to section 
     7(b)(6)(B)(iii), as determined by the Secretary;
       (B) such additional sums as may be necessary to carry out 
     subsequent activities of the Commission;
       (C) $10,000,000 for fiscal year 2007 for the initial 
     expenses of the Secretary in carrying out the program 
     authorized under section 4; and
       (D) such additional sums as may be necessary to carry out 
     subsequent activities of the Secretary under this Act.
       (2) Offset.--
       (A) Obtained from purchasers.--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 9.
       (B) Inclusion in pricing contracts.--Any offset obtained 
     under subparagraph (A) 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 7(b)(6)(B)(iii).
       (i) Termination.--The Commission shall terminate upon the 
     effective date of the repeal under section 11(c).

     SEC. 4. PROGRAM AUTHORITY.

       (a) In General.--The Secretary, in consultation with the 
     Secretary of Homeland Security, shall carry out a program 
     under this Act to make homeowners protection coverage 
     available through contracts for reinsurance coverage under 
     section 7, which shall be made available for purchase only by 
     eligible State programs.
       (b) Purpose.--The program shall be designed to make 
     reinsurance coverage under this Act available--
       (1) to improve the availability and affordability of 
     homeowners' insurance for the purpose of facilitating the 
     pooling, and spreading the risk, of catastrophic financial 
     losses from natural catastrophes;

[[Page S5239]]

       (2) to improve the solvency and capacity of homeowners' 
     insurance markets;
       (3) to encourage the development and implementation of 
     mitigation, prevention, recovery, and rebuilding standards; 
     and
       (4) to recommend methods to continuously improve the way 
     the United States reacts and responds to catastrophes, 
     including improvements to the HELP Fund established under 
     section 9.
       (c) Contract Principles.--Under the program established 
     under this Act, the Secretary shall offer reinsurance 
     coverage through contracts with covered purchasers, which 
     contracts shall--
       (1) minimize the administrative costs of the Federal 
     Government; and
       (2) provide coverage based solely on insured losses within 
     a State for the eligible State program purchasing the 
     contract.

     SEC. 5. QUALIFIED LINES OF COVERAGE.

       Each contract for reinsurance coverage made available under 
     this Act shall provide insurance coverage against residential 
     property losses to--
       (1) homes (including dwellings owned under condominium and 
     cooperative ownership arrangements); and
       (2) the contents of apartment buildings.

     SEC. 6. COVERED PERILS.

       (a) In General.--Each contract for reinsurance coverage 
     made available under this Act shall cover losses insured or 
     reinsured by an eligible State program purchasing the 
     contract that are proximately caused by--
       (1) earthquakes;
       (2) perils ensuing from earthquakes, including fire and 
     tsunamis;
       (3) tropical cyclones having maximum sustained winds of at 
     least 74 miles per hour, including hurricanes and typhoons;
       (4) tornadoes;
       (5) volcanic eruptions;
       (6) catastrophic winter storms; and
       (7) any other natural catastrophe peril (not including any 
     flood) insured or reinsured under the eligible State program 
     for which reinsurance coverage under section 7 is provided.
       (b) Rulemaking.--The Secretary shall, by regulation, define 
     the natural catastrophe perils described in subsection 
     (a)(7).

     SEC. 7. CONTRACTS FOR REINSURANCE COVERAGE FOR ELIGIBLE STATE 
                   PROGRAMS.

       (a) Eligible State Programs.--A program shall be eligible 
     to purchase a contract under this section for reinsurance 
     coverage under this Act only if the State entity authorized 
     to make such determinations certifies to the Secretary that 
     the program complies with the following requirements:
       (1) Program design.--The program shall be a State-
     operated--
       (A) insurance program that--
       (i) offers coverage for--

       (I) homes (which may include dwellings owned under 
     condominium and cooperative ownership arrangements); and
       (II) the contents of apartments to State residents; and

       (ii) is authorized by State law; or
       (B) reinsurance program that is designed to improve private 
     insurance markets that offer coverage for--
       (i) homes (which may include dwellings owned under 
     condominium and cooperative ownership arrangements); and
       (ii) the contents of apartments.
       (2) Operation.--
       (A) In general.--The program shall meet the following 
     requirements:
       (i) A majority of the members of the governing body of the 
     program shall be public officials.
       (ii) The State shall have a financial interest in the 
     program, which shall not include a program authorized by 
     State law or regulation that requires insurers to pool 
     resources to provide property insurance coverage for covered 
     perils.
       (iii) The State shall not be eligible for Consumer HELP 
     Fund assistance under section 9 if a State has appropriated 
     money from the State fund and not paid it back to the State 
     fund, with interest.
       (iv) Upon receipt of assistance from the Consumer HELP 
     Fund, each reimbursement contract sold by a State shall 
     provide for reimbursements at 100 percent of eligible losses.
       (v) A State shall be required to utilize either--

       (I) an open rating system that permits insurers to set 
     homeowners' insurance rates without prior approval of the 
     State; or
       (II) a rate approval process that requires actuarially 
     sound, risk-based, self-sufficient homeowners' insurance 
     rates.

       (B) Certification.--A State shall not be eligible for 
     Consumer HELP Fund assistance unless the Secretary can 
     certify that such State is in compliance with the requirement 
     described in clause (v).
       (3) Tax status.--The program shall be structured and 
     carried out in a manner so that the program is exempt from 
     all Federal taxation.
       (4) Coverage.--The program shall cover perils enumerated in 
     section 6.
       (5) Earnings.--The program may not provide for, nor shall 
     have ever made, any redistribution of any part of any net 
     profits of the program to any insurer that participates in 
     the program.
       (6) Prevention and mitigation.--
       (A) In general.--The program shall include prevention and 
     mitigation provisions that require that not less $10,000,000 
     and not more than 35 percent of the net investment income of 
     the State insurance or reinsurance program be used for 
     programs to mitigate losses from natural catastrophes for 
     which the State insurance or reinsurance program was 
     established.
       (B) Rule of construction.--For purposes of this paragraph, 
     prevention and mitigation shall include methods to reduce 
     losses of life and property, including appropriate measures 
     to adequately reflect--
       (i) encouragement of awareness about the risk factors and 
     what can be done to eliminate or reduce them;
       (ii) location of the risk, by giving careful consideration 
     of the natural risks for the location of the property before 
     allowing building and considerations if structures are 
     allowed; and
       (iii) construction relative to the risk and hazards, which 
     act upon--

       (I) State mandated building codes appropriate for the risk;
       (II) adequate enforcement of the risk-appropriate building 
     codes;
       (III) building materials that prevent or significantly 
     lessen potential damage from the natural catastrophes;
       (IV) building methods that prevent or significantly lessen 
     potential damage from the natural catastrophes; and
       (V) a focus on prevention and mitigation for any 
     substantially damaged structure, with an emphasis on how 
     structures can be retrofitted so as to make them building 
     code compliant.

       (7) Requirements regarding coverage.--
       (A) In general.--The program--
       (i) may not, except for charges or assessments related to 
     post-event financing or bonding, involve cross-subsidization 
     between any separate property and casualty lines covered 
     under the program unless the elimination of such activity in 
     an existing program would negatively impact the eligibility 
     of the program to purchase a contract for reinsurance 
     coverage under this Act pursuant to paragraph (3);
       (ii) shall include provisions that authorize the State 
     insurance commissioner or other State entity authorized to 
     make such a determination to terminate the program if the 
     insurance commissioner or other such entity determines that 
     the program is no longer necessary to ensure the availability 
     of homeowners' insurance for all residents of the State; and
       (iii) shall provide that, for any insurance coverage for 
     homes (which may include dwellings owned under condominium 
     and cooperative ownership arrangements) and the contents of 
     apartments that is made available under the State insurance 
     program and for any reinsurance coverage for such insurance 
     coverage made available under the State reinsurance program, 
     the premium rates charged shall be amounts that, at a 
     minimum, are sufficient to cover the full actuarial costs of 
     such coverage, based on consideration of the risks involved 
     and accepted actuarial and rate making principles, 
     anticipated administrative expenses, and loss and loss-
     adjustment expenses.
       (B) Applicability.--This paragraph shall apply--
       (i) before the expiration of the 2-year period beginning on 
     the date of the enactment of this Act, only to State programs 
     which, after January 1, 2007, commence offering insurance or 
     reinsurance coverage described in subparagraph (A) or (B), 
     respectively, of paragraph (1); and
       (ii) after the expiration of such period, to all State 
     programs.
       (8) Other qualifications.--
       (A) Regulations.--
       (i) Compliance.--The State program shall (for the year for 
     which the coverage is in effect) comply with regulations that 
     shall be issued under this paragraph by the Secretary, in 
     consultation with the National Commission on Catastrophe 
     Preparation and Protection established under section 3.
       (ii) Criteria.--The regulations issued under clause (i) 
     shall establish criteria for State programs to qualify to 
     purchase reinsurance under this section, which are in 
     addition to the requirements under the other paragraphs of 
     this subsection.
       (B) Contents.--The regulations issued under subparagraph 
     (A)(i) shall include requirements that--
       (i) the State program shall have public members on its 
     board of directors or have an advisory board with public 
     members;
       (ii) the State program provide adequate insurance or 
     reinsurance protection, as applicable, for the peril covered, 
     which shall include a range of deductibles and premium costs 
     that reflect the applicable risk to eligible properties;
       (iii) insurance or reinsurance coverage, as applicable, 
     provided by the State program is made available on a 
     nondiscriminatory basis to all qualifying residents;
       (iv) any new construction, substantial rehabilitation, and 
     renovation insured or reinsured by the program complies with 
     applicable State or local government building, fire, and 
     safety codes;
       (v) the State, or appropriate local governments within the 
     State, have in effect and enforce nationally recognized model 
     building, fire, and safety codes and consensus-based 
     standards that offer risk responsive resistance that is 
     substantially equivalent or greater than the resistance to 
     earthquakes or high winds;
       (vi) the State has taken actions to establish an insurance 
     rate structure that takes into account measures to mitigate 
     insurance losses;
       (vii) there are in effect, in such State, laws or 
     regulations sufficient to prohibit price

[[Page S5240]]

     gouging, during the term of reinsurance coverage under this 
     Act for the State program in any disaster area located within 
     the State; and
       (viii) the State program complies with such other 
     requirements that the Secretary considers necessary to carry 
     out the purposes of this Act.
       (b) Terms of Contracts.--Each contract under this section 
     for reinsurance coverage under this Act shall be subject to 
     the following terms and conditions:
       (1) Maturity.--The term of the contract shall not exceed 1 
     year or such longer term as the Secretary may determine.
       (2) Payment condition.--The contract shall authorize claims 
     payments for eligible losses only to the eligible State 
     program purchasing the coverage.
       (3) Retained losses requirement.--For each event of a 
     covered peril, the contract shall make a payment for the 
     event only if the total amount of insurance claims for 
     losses, which are covered by qualified lines, occur to 
     properties located within the State covered by the contract, 
     and that result from events, exceeds the amount of retained 
     losses provided under the contract (pursuant to section 8(a)) 
     purchased by the eligible State program.
       (4) Multiple events.--The contract shall--
       (A) cover any eligible losses from 1 or more covered events 
     that may occur during the term of the contract; and
       (B) provide that if multiple events occur, the retained 
     losses requirement under paragraph (3) shall apply on a 
     calendar year basis, in the aggregate and not separately to 
     each individual event.
       (5) Timing of eligible losses.--Eligible losses under the 
     contract shall include only insurance claims for property 
     covered by qualified lines that are reported to the eligible 
     State program within the 3-year period beginning upon the 
     event or events for which payment under the contract is 
     provided.
       (6) Pricing.--
       (A) Determination.--The price of reinsurance coverage under 
     the contract shall be an amount established by the Secretary 
     as follows:
       (i) Recommendations.--The Secretary shall take into 
     consideration the recommendations of the Commission in 
     establishing the price, but the price may not be less than 
     the amount recommended by the Commission.
       (ii) Fairness to taxpayers.--The price shall be established 
     at a level that--

       (I) is designed to reflect the risks and costs being borne 
     under each reinsurance contract issued under this Act; and
       (II) takes into consideration empirical models of natural 
     disasters and the capacity of private markets to absorb 
     insured losses from natural disasters.

       (iii) Self-sufficiency.--The rates for reinsurance coverage 
     shall be established at a level that annually produces 
     expected premiums that shall be sufficient to pay the 
     expected annualized cost of all claims, loss adjustment 
     expenses, and all administrative costs of reinsurance 
     coverage offered under this section.
       (B) Components.--The price shall consist of the following 
     components:
       (i) Risk-based price.--A risk-based price, which shall 
     reflect the anticipated annualized payout of the contract 
     according to the actuarial analysis and recommendations of 
     the Commission.
       (ii) Administrative costs.--A sum sufficient to provide for 
     the operation of the Commission and the administrative 
     expenses incurred by the Secretary in carrying out this Act.
       (7) Information.--The contract shall contain a condition 
     providing that the Commission may require a State program 
     that is covered under the contract to submit to the 
     Commission all information on the State program relevant to 
     the duties of the Commission, as determined by the Secretary.
       (8) Additional contract option.--
       (A) In general.--The contract shall provide that the 
     purchaser of the contract may, during a 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 8, 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.
       (B) Timing.--An additional contract purchased under 
     subparagraph (A) 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.
       (9) Others.--The contract shall contain such other terms as 
     the Secretary considers necessary--
       (A) to carry out this Act; and
       (B) to ensure the long-term financial integrity of the 
     program under this Act.
       (c) Participation by Multi-State Catastrophe Fund 
     Programs.--
       (1) In general.--Nothing in this Act shall prohibit, and 
     this Act shall be construed to facilitate and encourage, the 
     creation of multi-State catastrophe insurance or reinsurance 
     programs, or the participation by such programs in the 
     program established pursuant to section 4.
       (2) Regulations.--The Secretary shall, by regulation, apply 
     the provisions of this Act to multi-State catastrophe 
     insurance and reinsurance programs.

     SEC. 8. MINIMUM LEVEL OF RETAINED LOSSES AND MAXIMUM FEDERAL 
                   LIABILITY.

       (a) Available Levels of Retained Losses.--In 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 covered 
     perils (as required under section 7(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).
       (b) Minimum Level of Retained Losses.--
       (1) Contracts for state programs.--Subject to paragraphs 
     (3) and (4) and notwithstanding any other provision of this 
     Act, a contract for reinsurance coverage under section 7 for 
     an eligible State program that offers insurance or 
     reinsurance coverage described in subparagraph (A) or (B), 
     respectively, of section 7(a)(1), may not be made available 
     or sold unless the contract requires retained losses from 
     covered perils in the following amount:
       (A) In general.--The State program shall sustain an amount 
     of retained losses of not less than--
       (i) the claims-paying capacity of the eligible State 
     program, as determined by the Secretary; and
       (ii) an amount, determined by the Secretary in consultation 
     with the Commission, that is the amount equal to the eligible 
     losses projected to be incurred at least once every 50 years 
     on an annual basis from covered perils.
       (B) Transition rule for existing programs.--
       (i) Claims-paying capacity.--Subject to clause (ii), in the 
     case of any eligible State program that was offering 
     insurance or reinsurance coverage on the date of the 
     enactment of this Act and the claims-paying capacity of which 
     is greater than the amount determined under subparagraph 
     (A)(i) but less than an amount determined for the program 
     under subparagraph (A)(ii), the minimum level of retained 
     losses applicable under this paragraph shall be the claims-
     paying capacity of such State program.
       (ii) Agreement.--

       (I) In general.--Clause (i) shall apply to a State program 
     only if the program enters into a written agreement with the 
     Secretary providing a schedule for increasing the claims-
     paying capacity of the program to the amount determined for 
     the program under subparagraph (A)(ii) over a period not to 
     exceed 5 years.
       (II) Extension.--The Secretary may extend the 5-year period 
     under subclause (I) for not more than 5 additional 1-year 
     periods if the Secretary determines that losses incurred by 
     the State program as a result of covered perils create 
     excessive hardship on the State program.
       (III) Consultation.--The Secretary shall consult with the 
     appropriate officials of the State program regarding the 
     required schedule and any potential 1-year extensions.

       (C) Transition rule for new programs.--
       (i) 50-year event.--The Secretary may provide that, in the 
     case of an eligible State program that, after January 1, 
     2007, commences offering insurance or reinsurance coverage, 
     during the 7-year period beginning on the date that 
     reinsurance coverage under section 7 is first made available, 
     the minimum level of retained losses applicable under this 
     paragraph shall be the amount determined for the State under 
     subparagraph (A)(i), except that such minimum level shall be 
     adjusted annually as provided in clause (ii) of this 
     subparagraph.
       (ii) Annual adjustment.--Each annual adjustment under this 
     clause shall increase the minimum level of retained losses 
     applicable under this subparagraph to an eligible State 
     program described in clause (i) in a manner such that--

       (I) during the course of such 7-year period, the applicable 
     minimum level of retained losses approaches the minimum level 
     that, under subparagraph (A)(ii), will apply to the eligible 
     State program upon the expiration of such period; and
       (II) each such annual increase is a substantially similar 
     amount, to the extent practicable.

       (D) Reduction because of reduced claims-paying capacity.--
       (i) Authority.--Notwithstanding subparagraphs (A), (B), and 
     (C) or the terms contained in a contract for reinsurance 
     pursuant to such subparagraphs, if the Secretary determines 
     that the claims-paying capacity of an eligible State program 
     has been reduced because of payment for losses due to an 
     event, the Secretary may reduce the minimum level of retained 
     losses.
       (ii) Term of reduction.--

       (I) Extension.--The Secretary may extend the 5-year period 
     for not more than 5 additional 1-year periods if the 
     Secretary determines that losses incurred by the State 
     program as a result of covered perils create excessive 
     hardship on the State program.
       (II) Consultation.--The Secretary shall consult with the 
     appropriate officials of the State program regarding the 
     required schedule and any potential 1-year extensions.

       (E) Claims-paying capacity.--For purposes of this 
     paragraph, the claims-paying capacity of a State-operated 
     insurance or reinsurance program under section 7(a)(1) shall 
     be determined by the Secretary, in consultation with the 
     Commission, taking into consideration the claims-paying 
     capacity as determined by the State program, retained losses 
     to private insurers in the State in an amount assigned by the 
     State insurance commissioner, the cash surplus of the 
     program, and

[[Page S5241]]

     the lines of credit, reinsurance, and other financing 
     mechanisms of the program established by law.
       (c) Maximum Federal Liability.--
       (1) In general.--Notwithstanding any other provision of 
     law, the Secretary may sell only contracts for reinsurance 
     coverage under this Act in various amounts that comply with 
     the following requirements:
       (A) Estimate of aggregate liability.--The aggregate 
     liability for payment of claims under all such contracts in 
     any single year is unlikely to exceed $200,000,000,000 (as 
     such amount is adjusted under paragraph (2)).
       (B) Eligible loss coverage sold.--Eligible losses covered 
     by all contracts sold within a State 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.
       (ii) The amount equal to the eligible loss projected to be 
     incurred once every 50 years from a single event in the 
     State.
       (2) Annual adjustments.--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) In general.--The Secretary may not make available for 
     purchase contracts for reinsurance coverage under this Act 
     that would pay out more than 100 percent of eligible losses 
     in excess of retained losses in the case of a contract under 
     section 7 for an eligible State program, for such State.
       (2) Payout.--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).

     SEC. 9. CONSUMER HURRICANE, EARTHQUAKE, LOSS PROTECTION 
                   (HELP) FUND.

       (a) Establishment.--There is established within the 
     Treasury of the United States a fund to be known as the 
     Consumer HELP Fund (in this section referred to as the 
     ``Fund'').
       (b) Credits.--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) Uses.--Amounts in the Fund shall be available to the 
     Secretary only for the following purposes:
       (1) Contract payments.--For payments to covered purchasers 
     under contracts for reinsurance coverage for eligible losses 
     under such contracts.
       (2) Commission costs.--To pay for the operating costs of 
     the Commission.
       (3) Administrative expenses.--To pay for the administrative 
     expenses incurred by the Secretary in carrying out the 
     reinsurance program under this Act.
       (4) Termination.--Upon termination under section 11, as 
     provided in such section.
       (d) Borrowing.--
       (1) Authority.--To the extent that the amounts in the Fund 
     are insufficient to pay claims and expenses under subsection 
     (c), the Secretary--
       (A) may issue such obligations of the Fund as may be 
     necessary to cover the insufficiency; and
       (B) shall purchase any such obligations issued.
       (2) Public debt transaction.--For the purpose of purchasing 
     any such obligations under paragraph (1)--
       (A) 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
       (B) the purposes for which such 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 obligations.--Obligations 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) Treatment.--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) Repayment.--Any obligations issued under this 
     subsection shall be--
       (A) repaid including interest, from the Fund; and
       (B) recouped from premiums charged for reinsurance coverage 
     provided under this Act.
       (e) Investment.--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 Funds.--Except for amounts made 
     available pursuant to subsection (d) and section 3(h), no 
     further Federal funds shall be authorized or appropriated for 
     the Fund or for carrying out the reinsurance program under 
     this Act.

     SEC. 10. REGULATIONS.

       The Secretary, in consultation with the Secretary of the 
     Department of Homeland Security, shall issue any regulations 
     necessary to carry out the program for reinsurance coverage 
     under this Act.

     SEC. 11. TERMINATION.

       (a) In General.--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 20-year 
     period beginning on the date of the enactment of this Act.
       (b) Extension.--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 or 
     appropriate to carry out the purpose of this Act under 
     section 4(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) Repeal.--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) Deficit Reduction.--The Secretary shall cover into the 
     General Fund of the Treasury any amounts remaining in the 
     Fund under section 9 upon the repeal of this Act.

     SEC. 12. ANNUAL STUDY CONCERNING BENEFITS OF THE ACT.

       (a) In General.--The Secretary shall, on an annual basis, 
     conduct a study and submit to the Congress a report that--
       (1) analyzes the cost and availability of homeowners' 
     insurance for losses resulting from catastrophic natural 
     disasters covered by the reinsurance program under this Act;
       (2) describes the efforts of the participating States in--
       (A) enacting preparedness, prevention, mitigation, 
     recovery, and rebuilding standards; and
       (B) educating the public on the risks associated with 
     natural catastrophe; and
       (3) makes recommendations regarding ways to improve the 
     program under this Act and its administration.
       (b) Contents.--Each annual study under this section shall 
     also 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 natural disasters;
       (2) for each State or region, the percentage of homeowners 
     who have such coverage, the catastrophes covered, and the 
     average cost of such coverage; and
       (3) for each State or region, the effects this Act is 
     having on the availability and affordability of such 
     insurance.
       (c) Timing.--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 Requirement.--The Secretary 
     shall first submit an annual report under this section not 
     later than 2 years after the date of the enactment of this 
     Act.

     SEC. 13. GAO STUDY OF THE NATIONAL FLOOD INSURANCE PROGRAM 
                   AND HURRICANE-RELATED FLOODING.

       (a) In General.--In light of the flooding associated with 
     Hurricane Katrina, the Comptroller General of the United 
     States shall conduct a study of the availability and adequacy 
     of flood insurance coverage for losses to residences and 
     other properties caused by hurricane-related flooding.
       (b) Contents.--The study under this section shall determine 
     and analyze--
       (1) the frequency and severity of hurricane-related 
     flooding during the last 20 years in comparison with flooding 
     that is not hurricane-related;
       (2) the differences between the risks of flood-related 
     losses to properties located within the 100-year floodplain 
     and those located outside of such floodplain;
       (3) the extent to which insurance coverage referred to in 
     subsection (a) is available for properties not located within 
     the 100-year floodplain;
       (4) the advantages and disadvantages of making such 
     coverage for such properties available under the national 
     flood insurance program;
       (5) appropriate methods for establishing premiums for 
     insurance coverage under such program for such properties 
     that, based on accepted actuarial and rate making principles, 
     cover the full costs of providing such coverage;
       (6) appropriate eligibility criteria for making flood 
     insurance coverage under such program available for 
     properties that are not located within the 100-year 
     floodplain or within a community participating in the 
     national flood insurance program;
       (7) the appropriateness of the existing deductibles for all 
     properties eligible for insurance coverage under the national 
     flood insurance program, including the standard and variable 
     deductibles for pre-FIRM and post-FIRM properties, and 
     whether a broader range of deductibles should be established;
       (8) income levels of policyholders of insurance made 
     available under the national flood insurance program whose 
     properties are pre-FIRM subsidized properties;

[[Page S5242]]

       (9) how the national flood program is marketed, if changes 
     can be made so that more people are aware of flood coverage, 
     and how take-up rates may be improved;
       (10) the number of homes that are not primary residences 
     that are insured under the national flood insurance program 
     and are pre-FIRM subsidized properties; and
       (11) suggestions and means on how the program under this 
     Act can better meet its stated goals as well as the 
     feasibility of expanding the national flood insurance program 
     to cover the perils covered by this Act.
       (c) Consultation With FEMA.--In conducting the study under 
     this section, the Comptroller General shall consult with the 
     Director of the Federal Emergency Management Agency.
       (d) Report.--The Comptroller General shall complete the 
     study under this section and submit a report to the Congress 
     regarding the findings of the study not later than 5 months 
     after the date of the enactment of this Act.

     SEC. 14. DEFINITIONS.

       For purposes of this Act, the following definitions shall 
     apply:
       (1) Commission.--The term ``Commission'' means the National 
     Commission on Catastrophe Preparation and Protection 
     established under section 3.
       (2) Covered perils.--The term ``covered perils'' means the 
     natural disaster perils under section 6.
       (3) Covered purchaser.--The term ``covered purchaser'' 
     means an eligible State-operated insurance or reinsurance 
     program that purchases reinsurance coverage made available 
     under a contract under section 7.
       (4) Disaster area.--The term ``disaster area'' means a 
     geographical area, with respect to which--
       (A) a covered peril specified in section 6 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) Eligible losses.--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) Eligible state program.--The term ``eligible State 
     program'' means--
       (A) a State program that, pursuant to section 7(a), is 
     eligible to purchase reinsurance coverage made available 
     through contracts under section 7; or
       (B) a multi-State program that is eligible to purchase such 
     coverage pursuant to section 7(c).
       (7) Price gouging.--The term ``price gouging'' means the 
     providing of any consumer good or service by a supplier 
     related to repair or restoration of property damaged from a 
     catastrophe 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 
     catastrophe involved), than the price charged by the supplier 
     for such consumer good or service immediately before the 
     disaster.
       (8) Qualified lines.--The term ``qualified lines'' means 
     lines of insurance coverage for which losses are covered 
     under section 5 by reinsurance coverage under this Act.
       (9) Reinsurance coverage.--The term ``reinsurance coverage 
     under this Act'' means coverage under contracts made 
     available under section 7.
       (10) Secretary.--The term ``Secretary'' means the Secretary 
     of the Treasury.
       (11) State.--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.
                                 ______