[Congressional Record Volume 157, Number 41 (Thursday, March 17, 2011)]
[Senate]
[Pages S1845-S1846]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mrs. FEINSTEIN (for herself and Mrs. Boxer):
  S. 637. A bill to establish a program to provide guarantees for debt 
issued by or on behalf of State catastrophe insurance programs to 
assist in the financial recovery from earthquakes, earthquake-induced 
landslides, volcanic eruptions, and tsunamis; to the Committee on 
Banking, Housing, and Urban Affairs.
  Mrs. FEINSTEIN. Mr. President, I rise today to introduce the 
Earthquake Insurance Affordability Act. This bill makes important 
changes that will increase availability and reduce cost of catastrophic 
insurance for homeowners in California and other earthquake-prone 
Sstates.
  The tragedy and devastation of the recent 9.0 earthquake in Japan was 
a real wakeup call for many of us. You see, the people of Japan are 
keenly aware of the risks of earthquakes. Every year, thousands of 
people participate in earthquake drills, and their building codes are 
the most advanced in the world. Japanese seismologists have the most 
sophisticated technology and monitoring systems. But all of this did 
little to protect them from an earthquake of this magnitude.
  The people of California and much of the West Coast face a similar 
risk. The United States Geological Survey predicts a 99.7 percent 
chance that a magnitude 6.7 earthquake will strike in California in the 
next 30 years. The agency also predicts a 46 percent chance that a 
magnitude 7.5 percent or higher earthquake will strike California in 
the next 30 years.
  The 2008 ShakeOut Scenario conducted by the US Geological Survey and 
FEMA modeled a 7.8 earthquake on the southern San Andres Fault. Though 
that quake was only 1/10th the size of the recent event in Honshu, 
Japan, FEMA estimated that a 7.8 earthquake in Los Angeles would result 
in 2,000 deaths and an economic loss of $213.3 billion.
  The simple fact is that we cannot prevent earthquakes, so we must be 
prepared in the event one does occur. That is the only way we will be 
able to respond and recover quickly.
  That is why I am introducing the Earthquake Insurance Affordability 
Act. This legislation allows non-profit state-run disaster insurance 
programs to receive federal guarantees if they need access to credit in 
the aftermath of a catastrophic disaster. Access to credit is critical 
in the immediate aftermath of disasters because the market will likely 
be disrupted and private institutions will be reluctant to lend the 
large sums necessary to facilitate a quick and meaningful recovery.
  This Federal guarantee will be limited. The Secretary of Treasury 
must certify that recipients of each of the loan guarantee are able to 
repay debts within a reasonable timeframe. Moreover, my legislation 
ensures that the cost of the program is born by state programs, not the 
federal taxpayer. The Congressional Budget Office has estimated that my 
bill comes at no cost to the taxpayer.
  But this legislation is about more than just access to credit--it 
will guarantee homeowners have access to affordable earthquake 
insurance coverage. This means homeowners will be able to quickly 
rebuild in the aftermath of an earthquake.
  This legislation is necessary because most homeowner insurance 
policies do not cover earthquakes. In California, for instance, most 
homeowner insurance policies cover fire damage but not damage caused by 
earthquakes.
  As a result, homeowners are often put in the position of either 
having to purchase expensive supplemental insurance or leaving their 
homes uninsured against these risks.
  In order to help promote coverage for these risks, many states and 
the Federal Government have set up supplemental insurance programs that 
offer this coverage at affordable rates.
  At the Federal level, the National Flood Insurance Program offers 
flood insurance to residents living in flood plains where private 
insurance is unavailable or too expensive.
  Similar State-level programs exist in California, Florida, Texas, and 
other states to help residents protect their homes against catastrophic 
disasters. In my state, The California Earthquake Authority, CEA, was 
set up after the devastating 1994 Northridge earthquake to make 
earthquake insurance more affordable.
  Unfortunately, many of these programs are not fully utilized. The 
California Earthquake Authority insures 70 percent of homeowners who 
purchase earthquake insurance in my state, but only 770,000 homeowners 
in California opted to buy such insurance. That means only 12 percent 
of Californians will be covered up if an earthquake hits.
  The reason for such low use in that premiums and deductibles remain 
too high for the average consumer. A policy covering a $400,000 home 
and $60,000 of its contents costs an additional $1,105 per year, and 
that's on top of normal homeowners insurance. Even worse, with such 
high deductibles, policyholders must suffer near total collapse before 
they receive any payout. For most, this just isn't a good deal.
  The reason for high-cost, high-deductible policies is that the CEA is 
forced to spend nearly $200 million each year to purchase reinsurance. 
This ensures that in the event of a major catastrophe, the CEA will 
still be able to pay out all of its claims. It is good policy for the 
CEA to incur this expense, and I commend their responsible business 
practices.
  However, since 1994 the California Earthquake Authority has paid $2.5 
billion in reinsurance premiums and only received back $250,000 in 
claims. It doesn't take a savvy businessman to see this isn't a good 
investment. But with minimal changes to federal law, the CEA and other 
state-run insurance programs can drastically reduce the

[[Page S1846]]

need for expensive reinsurance and substantially decrease the cost of 
their products.
  The Earthquake Insurance Affordability Act makes these changes, 
allowing programs like the California Earthquake Authority to access 
sufficient capital following a disaster.
  Let me be clear: this is not a bailout or a handout for states. The 
California Earthquake Authority is independent from the state and 
financially stable.
  This bill would increase insurance coverage in California and the 
rest of the country and help consumers deal with losses that will occur 
when the next major disaster strikes.
  Over the first 5 years this legislation is in effect, nearly half a 
billion dollars in reinsurance costs would be saved and passed along to 
consumers.
  The California Earthquake Authority could cut premiums by 30 percent 
or deductibles by 50 percent.
  This could result in at least 700,000 new California homeowners 
purchasing earthquake insurance.
  Following major disasters, the federal government spends millions of 
dollars, and often billions, cleaning up the mess.
  Katrina cost FEMA $7.2 billion.
  The Northridge earthquake cost FEMA $7 billion.
  Hurricane Andrew cost FEMA $1.8 billion.
  By enacting the Earthquake Insurance Affordability Act and increasing 
the number of individuals with insurance, the cost of disaster recovery 
to the Federal Government could be substantially lower.
  This is because FEMA cannot make payments to individuals who have 
insurance coverage. Therefore, every family that purchases earthquake 
insurance as a result of this bill, is one less family that FEMA may 
have to support when disaster strikes.
  The bottom line is this: the next big earthquake is coming and we are 
not prepared for it. Families need to make sure they have earthquake 
preparedness plans, and homeowners need to evaluate the best ways to 
protect their homes. Structures need to be strengthened and all new 
buildings must be built to the highest standards. The Federal 
Government must also do its part, to help facilitate this preparedness.
  The Earthquake Insurance Affordability Act will make great strides to 
help our country prepare for a major earthquake, and it does so without 
burdening the federal taxpayer. I urge my colleagues to quickly adopt 
this critical piece of legislation and help us better prepare for 
tragedy.
                                 ______