[Congressional Record Volume 152, Number 68 (Friday, May 26, 2006)]
[Senate]
[Pages S5332-S5333]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         CATASTROPHE INSURANCE

  Mr. NELSON of Florida. Mr. President, yesterday, I introduced four 
bills, 3114, 3115, 3116, and 3117 that are aimed at providing a 
comprehensive solution to strengthen our Nation's property and casualty 
insurance market. Without serious reform, the Federal Government will 
be forced to continue to spend billions of dollars of taxpayer money to 
cover the costs of natural disasters in the United States. Worse, 
without Federal action, property insurance soon will become more 
expensive and harder to find, preventing some consumers from insuring 
their homes and businesses.
  As we know too well, the last few years have brought a devastating 
cycle of natural catastrophes in the United States. In 2004 and 2005, 
we witnessed a series of powerful hurricanes that caused unthinkable 
human tragedy and property loss. Hurricanes Katrina and Rita alone 
caused over $200 billion in total economic losses, including insured 
and uninsured losses.
  Recently in my own home State of Florida, eight catastrophic storms 
in 15 months caused more than $31 billion in insured damages. Now 
Florida is witnessing skyrocketing insurance rates, insurance companies 
are canceling hundreds of thousands of policies, and Florida's State 
catastrophe fund is depleted.
  In short, the inability of our private markets to fully handle the 
fallout from natural disasters has made our Nation's property and 
casualty insurance marketplace unstable. This market instability 
repeatedly has forced the Federal Government to absorb billions of 
dollars in uninsured losses. This is a waste of taxpayer money, 
especially when we know there are ways to design the system to 
anticipate and plan for the financial impacts of catastrophes.
  As insurance companies struggle to maintain their businesses, costs 
are passed on to homeowners and small businesses in Florida and in 
other States. In essence, the people who can least afford it are being 
forced to bear the disproportionate share of the billions of dollars of 
losses caused by natural catastrophes.
  Many Floridians have seen their insurance bills double in the last 
few years. As I travel around Florida, I hear repeatedly from my 
constituents that they may soon be unable to afford property and 
casualty insurance. That is a frightening proposition for people living 
in a State where increasingly vicious hurricane seasons are predicted. 
I am sure we all agree--consumers never should be put in the untenable 
position of having to choose between purchasing insurance and 
purchasing other necessities.
  While our Nation's property and casualty insurance system is not yet 
completely broken, it is clear that Congress needs to act now to shore 
up the system. Private sector insurance is currently available to 
spread some catastrophe-related losses throughout the Nation and 
internationally, but most experts believe that there will be 
significant insurance and reinsurance shortages. These shortages could 
result in future dramatic rate increases for consumers and businesses 
and the unavailability of catastrophe insurance.

  Let me be clear: these issues will not just affect Florida or the 
coastal States. Natural catastrophes can strike anywhere in our 
country. For example, a major earthquake fault line runs through 
several of our Midwestern States. We also saw firsthand the devastating 
effects of a volcano eruption at Mount St. Helens in Washington State.
  In the past few decades, major disasters have been declared in almost 
every State. As I mentioned earlier, the Federal Government has 
provided and will continue to provide billions of dollars and resources 
to pay for these catastrophic losses, at huge costs to all American 
taxpayers.
  Congress has struggled with these issues for decades. Although we 
have talked about these issues time and again, nothing much has gotten 
accomplished. The most notable step Congress did take was to create the 
National Flood Insurance Program. But Congress needs to do much more. 
It is time for a comprehensive approach to solving our Nation's 
property and casualty insurance issues.
  These matters are usually within the purview of the States, and I 
cannot undersate the importance of State-based solutions to these 
insurance issues. Nonetheless, the Federal Government also has a 
critical interest in ensuring appropriate and fiscally responsible risk 
management of catastrophes.
  For example, mortgages require reliable property insurance, and the 
unavailability of reliable property insurance would make most real 
estate transactions impossible. Moreover, the public health, safety, 
and welfare demand that structures damaged or destroyed in catastrophes 
be reconstructed as soon as possible.
  Therefore, the inability of the private sector insurance and 
reinsurance markets to maintain sufficient capacity to enable Americans 
to obtain property insurance coverage in the private sector endangers 
the national economy and our public health, safety, and welfare.
  In order to help protect consumers and small businesses, today I am 
introducing four bills as part of a comprehensive approach to fixing 
our troubled insurance system. Let me summarize each of the four bills 
and tell you how this integrated approach makes good policy sense.
  The first piece of legislation I am introducing today is the 
Homeowners Protection Act of 2006, S3117. This bill is a companion bill 
to a bipartisan piece of legislation introduced by Florida 
Representatives Brown-Waite, Hastings, and others.
  This bill would establish a fund within the U.S. Department of 
Treasury, which would sell Federal catastrophe insurance to State 
catastrophe funds, like the fund I helped to set up in Florida. State 
catastrophe funds essentially act as reinsurance mechanisms for 
insurance companies who lack resources to compensate homeowners for 
their losses.
  Under this bill, State catastrophe funds would be eligible to 
purchase reinsurance from the Federal fund at sound rates. However, a 
State catastrophe fund would be prohibited from

[[Page S5333]]

gaining access to the Federal fund until private insurance companies 
and the State catastrophe fund met their financial obligations.
  Why is this good for homeowners? Because this backup mechanism will 
improve the solvency and capacity of homeowners insurance markets, 
which will reduce the chance that consumers will lose their insurance 
coverage or be hit by huge premium increases.
  Importantly, the Homeowners Insurance Protection Act of 2006 also 
recognizes that part of the problem with our broken property and 
casualty insurance system lies with outdated building codes and 
mitigation techniques. Noted insurance experts and consumer groups have 
been pointing out this problem for many years. So, under the bill, the 
Secretary of the Treasury would establish an expert commission to 
assist States in developing mitigation, prevention, recovery, and 
rebuilding programs that would reduce the types of enormous damage we 
have seen caused by recent hurricanes.
  I note that this bill covers not just hurricanes, but catastrophes 
such as earthquakes, cyclones, tornados, catastrophic winter storms, 
and volcanic eruptions. These are disasters that can--and do--occur in 
many different States. Again, every State and every taxpayer is 
affected by this problem, not just Florida.
  This bill has widespread support from a broad range of stakeholders, 
including ProtectingAmerica.org, a national coalition of first 
responders, businesses, and emergency managers. This organization is 
cochaired by former FEMA Director James Lee Witt, one of the most 
respected names in disaster prevention and preparedness.
  The second bill I am introducing today is the Catastrophe Savings 
Accounts Act of 2006, S. 3115. The companion bill was introduced in the 
House of Representatives by a bipartisan group of Members including Tom 
Feeney and Debbie Wasserman Schultz.
  This bill proposes changing the Federal Tax Code to allow homeowners 
to put money aside--on a tax-free basis--to grow over time. If and when 
a catastrophe hits, a homeowner could take the accumulated savings out 
of the account to cover uninsured losses, deductible expenses, and 
building upgrades to mitigate damage that could be caused in future 
disasters. Homeowners could even reduce their insurance premiums 
because their tax-free savings would allow them to choose higher 
deductibles.
  The benefits of this approach are pretty straightforward and very 
consumer friendly. Homeowners would be encouraged to plan in advance 
for future disasters, and they wouldn't be taxed to do it. Moreover, 
homeowners wouldn't be as dependent on insurance companies to help them 
out immediately after a disaster. As one expert has noted, why should a 
consumer continue to give insurance companies thousands of dollars each 
year when the consumer could deposit the same amount of money annually 
in a tax-free, interest-bearing savings account controlled by the 
consumer?
  The third bill I am introducing today is the Policyholder Disaster 
Protection Act of 2006, S. 3116. This bill was introduced in the House 
of Representatives by Mark Foley and has eight cosponsors.
  Under this bill, insurance companies would be permitted to accumulate 
tax-deferred catastrophic reserves, much the way that homeowners would 
be permitted under the bill I just discussed. Depending on their size, 
insurance companies could save up to a certain capped amount, which 
would grow over time.
  Our current Federal Tax Code actually provides a disincentive for 
insurance companies to accumulate reserve funds for catastrophes. Under 
the current system, insurance companies can only reserve against losses 
that already have occurred, instead of future losses. The United States 
is the only industrialized nation that actually taxes reserves in this 
way. It is time for reform, so that consumers are better protected.
  Make no mistake though--this bill is not a giveaway to the insurance 
companies. Instead, the Policy Disaster Protection Act of 2006 would 
strictly regulate when and how insurance companies could access their 
reserves, to make sure the money is used only for its intended 
purposes.
  If implemented correctly, this bill could result in approximately $15 
billion worth of reserves being saved up by insurance companies, which 
later could be spent to pay for policyholder claims and to keep 
insurance policies available and affordable. Consumers could feel more 
protected knowing that their insurance company would have the money 
saved to help them out after a major disaster. Moreover, this approach 
should help make the insurance market more stable and less prone to 
insurers going bankrupt.
  Finally, the fourth bill, S. 3114, that I am introducing as part of 
my comprehensive reform package is the Commission on Catastrophic 
Disaster Risk and Insurance Act of 2006.
  Under this bill, Congress would create a Federal commission--made up 
of a cross-section of the best experts in the Nation--to quickly 
recommend to Congress the best approach to addressing catastrophic risk 
insurance. The experts on the commission would be required to analyze 
the three bills that I am introducing today, along with other potential 
approaches to reforming our insurance system.
  Creating a Federal commission is not always the best answer, 
especially if it can slow down reform efforts. But in this case, the 
opposite would occur. I say that with cofidence--because I am following 
a successful model that I used when I was insurance commissioner for 
the State of Florida in the 1990s. After Hurricane Andrew devastated 
South Florida in 1992, I created a nonpartisan commission comprised of 
university presidents.
  I asked the Florida commission to study the problems with the 
property and casualty insurance market and recommend what legislative 
reforms were necessary to restore health to Florida's system. Within 
months, the commission acted--breaking through the deep political 
logjam and inertia--to recommend the legislative reforms that 
ultimately became State law.
  That model worked then, and I think it can work now on a Federal 
level. Without the work of an expert, neutral commission to help guide 
us in these incredibly complex matters, I fear that Congress will never 
find the consensus necessary to reform the system and bring stability.
  Let me emphasize again what we need to accomplish to reform our 
current insurance system and to effectively plan for catastrophic 
losses.
  We need a comprehensive approach that will make sure the United 
States is truly prepared for the financial fallout from natural 
disasters. We need a property and casualty insurance system that is not 
forced to spend valuable taxpayer dollars after a catastrophe strikes. 
We need a system that protects consumers and small businesses from 
losing their insurance policies or being forced to pay exorbitant 
insurance rates. We need ways to encourage responsible construction and 
mitigation techniques. And we need a system that helps insurance 
companies use their resources in cost-effective ways so that they will 
not go insolvent after major disasters.
  Our American economy depends on a healthy property and casualty 
insurance system. By enacting meaningful reforms, we can ensure that 
our economy remains protected and remains the most resilient economy in 
the world. I know this complicated process won't be easy for us--but 
let's roll up our shirtsleeves and get it done.
  I request that the four bills I discussed--S. 3114, S. 3115, S. 3116, 
and S. 3117--be printed in the Congressional Record.

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