Insurance- ‘Green’ Coalition Opposes Expanding Government Catastrophe Bailouts

April 30, 2008

An unusual alliance of insurance and environmental groups is urging lawmakers to focus on policies that encourage property mitigation and environmental protection in catastrophe-prone areas, rather than expanding the government’s flood insurance or “bailing out” Florida’s catastrophe plan.

The coalition, calling itself Americans for Smart Natural Catastrophe Policy, said it will ask federal and state lawmakers to support tax credits, loans and grants for lower income property owners to encourage them to storm-proof their homes and businesses.

Senate Banking Committee Chairman Christopher Dodd, D-Conn., has introduced legislation along these lines to assist homeowners already living along the coasts and in financial need to strengthen their homes (S. 2327, S. 2328).

At the same time, Americans for Smart Natural Catastrophe Policy
said it “strongly opposes proposals that encourage people to build homes in hurricane-prone, environmentally-sensitive areas by creating new programs to directly or indirectly subsidize their homeowner’s insurance.” The group cited proposal to make wind coverage available in the federal flood insurance program as the type of public policy it opposes.

The coalition cites the following organizations as members: National Wildlife Federation, Republicans for Environmental Protection,
Council for Citizens Against Government Waste, Competitive Enterprise Institute, Association of Bermuda Insurers and Reinsurers,
Reinsurance Association of America, Friends of the Earth, The American Consumer Institute, Americans for Prosperity and Defenders of Wildlife.

The group also criticized proposals calling for the federal government to play a new and expanded role in natural catastrophe insurance, arguing this approach would cost Americans throughout the
country tens of billions of their tax dollars to subsidize homeowners
living in Florida and other hurricane prone states. “These proposals
undermine public safety by giving individuals an incentive to build homes in coastal areas that may be increasingly at risk given the potential for adverse effects of climate change. Furthermore, the legislative proposals also discourage the provision of wind insurance by the private sector,” the group said in a statement.

In March, coalition members were joined by some other organizations in sending a letter to all 100 members of the U.S. Senate. The letter asked senators to oppose any amendments to expand the National Flood Insurance Program (NFIP), which already is $18 billion in debt, to include wind damage or to create new federal natural catastrophe loan, insurance or reinsurance programs. The NFIP expires on September 30 at which time it may be reauthorized. The House has already passed legislation (H.R. 3121) and the Senate is expected to consider its version (S. 2284) before the Memorial Day recess.

Those signing the letter were: Consumer Federation of America,
Defenders of Wildlife, Environmental Defense, Friends of the Earth,
National Wildlife Federation, Association of State Floodplain Managers, Republicans for Environmental Protection, Council for Citizens Against Government Waste, Competitive Enterprise Institute, Freedom Works, Taxpayers for Common Sense, Association of Bermuda Insurers and Reinsurers, and Reinsurance Association of America.

The group said its member organizations will be meeting with lawmakers in Washington and at home to discuss how the pending legislation will impact taxpayers, local environments and economies.

The group has set up a Web site to serve as a resource for policymakers at

“With such a credible, formalized chorus of opposition, we believe our coalition can have a real impact in the natural catastrophe policy debate, and effectively communicate the truly irresponsible nature of the proposed amendments to the NFIP,” said David Conrad, of the National Wildlife Federation. “Those living further inland would end up subsidizing the costs of residents living on the coast. And, in the end, all taxpayers would suffer.”

The coalition opposes expanding the NFIP to include wind damage.
“Despite the NFIP’s present multimillion dollar debt, some in Congress want to make matters worse by adding wind coverage to the program. The House-passed version of the reauthorization bill (Section 7 of the H.R.3121) does this, diverting attention away from the original focus of the NFIP and increasing economic stress on a program that is already underfunded and overburdened,” the group said in a press release.

“I don’t get it. You have a program that’s already wasting money and doesn’t work and you want to add more to it?” said J. Robert Hunter, former Federal Insurance Administrator and current Director of Insurance at the Consumer Federation of America.

The coalition also opposes efforts to pass federal legislation, in its words, “bailing out Florida’s faulty catastrophic insurance programs, as well as any other states’ potentially defective proposals.”

The House-passed bill (H.R. 3555) would require the federal government to provide catastrophic loans to states if losses exceed 150 percent of state premiums assessed. However, the bill would not require that the federal loans be repaid over a specific time period, nor provide a penalty for a state’s default (S. 2310 includes a similar proposal). The proposed legislation would also create a new
Federal Natural Catastrophe Reinsurance Fund that would require the
Treasury Department to sell reinsurance contracts providing coverage for 90 percent of insured losses that exceed the levels projected for a one-in-200 year catastrophic event.

“Let’s not turn natural disasters into financial disasters,” said
Thomas Schatz, president of the Council for Citizens Against Government Waste. “If the Senate adopts ill-conceived wind insurance programs the liability to the federal government – and U.S. taxpayers – will be enormous.”

According to Towers Perrin, the potential cost to the federal government could be as much as $200 billion if wind coverage is added to the NFIP.

“Offering real incentives to those who responsibly reinforce their
homes or relocate to less sensitive areas is a step in the right
direction,” said Frank Nutter, president of the Reinsurance Association of America. “The best way to help homeowners is to help them avoid or minimize damage in the first place.”

Americans for Smart Natural Catastrophe Policy

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