U.S. House Passes ‘Beach House Bailout’ Bill

Published May 24, 2010

The U.S. House Financial Services Committee has passed Representative Ron Klein’s (D-FL) Homeowners’ Defense Act, H.R. 2555, which critics have dubbed a “beach house bailout” bill. The bill aims to keep property insurance rates artificially low in coastal areas at risk of hurricanes and other natural disasters.

The bill creates a National Catastrophe Risk Consortium, a quasigovernmental agency that would allow states to pool catastrophic risk.

It would also create a debt guarantee program. The federal government would guarantee $5 billion of state earthquake insurance programs and $20 billion of other state insurance programs—guarantees that would apply only to California and Florida, respectively, while leaving taxpayers across the country to shoulder the obligations.

No Actuarial Certification
Amendments introduced by Rep. Scott Garrett (R-NJ) were not included in the final bill, which was ordered reported to the House by a vote of 39-26. The amendments included one that would have required backstopped state insurance and reinsurance programs to be certified as actuarially sound.

Two other insurance-related bills have also been reported out of the House Financial Services Committee. Rep. Maxine Waters’s (D-CA) Flood Insurance Reform Priorities Act of 2010, H.R. 5114, includes a five-year reauthorization of the National Flood Insurance Program. The bill also phases in increased flood insurance rates for NFIP-insured properties and delays the mandatory purchase of flood insurance for areas newly designated as having a flood hazard.

Rep. Gene Taylor’s (D-MS) Multiple Peril Insurance Act of 2009, H.R. 1264, would add wind insurance coverage to the National Flood Insurance Program, which now covers only flood damage.

‘Worst Bills in Congress’
“I feel pretty safe in saying that these bills are the very worst pieces of legislation under serious consideration in this Congress, and that’s saying a lot,” said Eli Lehrer, national director of The Heartland Institute’s Center on Finance, Insurance, and Real Estate. “There are lots of things that are arguably government responsibilities. But I’m not sure if I know of any political philosophy that says bailing out $2 million beach homes should be a federal priority.”

Opposition to the Homeowners Defense Act is being mounted by the Smarter Safer coalition, made up of unusual bedfellows including the National Wildlife Federation, the Sierra Club, Americans for Tax Reform, The Heartland Institute, and insurers including Liberty Mutual and the Association of Bermuda Insurers and Reinsurers.

On May 10 the group sent House Speaker Nancy Pelosi (D-CA) and House Minority Leader John Boehner (R-OH) a letter detailing the coalition’s many objections to the bill. They asked the House to focus its natural catastrophe efforts on mitigation legislation instead of property insurance subsidies and federal backstops.

‘Development in Unsafe Areas’
“In addition to shifting significant costs onto federal taxpayers, a fundamentally unfair and, in this era of spiraling federal deficits, a fiscally irresponsible request, H.R. 2555 encourages development in unsafe and environmentally fragile areas,” the letter states. “While we agree that there may be actions that need to be taken to help lower-income families afford insurance when they already live in harm’s way, subsidizing development in environmentally sensitive areas primarily benefits those who least need assistance. Encouraging this development directly harms this nation’s residents and communities by eroding our natural barriers to storms and their impact.”

The letter adds, “We strongly believe that instead of acting favorably on the fundamentally misguided and fiscally irresponsible Homeowners’ Defense Act, the House of Representatives should focus its natural catastrophe efforts on smart mitigation legislation that helps property owners—particularly lower and moderate income families—make their homes safer. Federal efforts to strengthen state-level mitigation programs will better protect those living in at-risk areas and it gets at the root of the problem. The Klein legislation, on the other hand, does nothing to solve the underlying issues. Instead, it would create a system that perpetuates a flawed and costly approach.”

Arin Greenwood ([email protected]) writes from Alexandria, Virginia.