Research & Commentary: Homeowners’ Defense Act

Published March 5, 2010

Concerned about making homeowners’ insurance affordable in coastal areas, Congress currently is considering proposals to expand its role in catastrophe insurance. Proponents of an increased role for the federal government have lined up in support of the Homeowners’ Defense Act (H.R. 2555).

The bill would have the federal government set up a variety of mechanisms intended to reduce the cost of homeowners’ insurance and the reinsurance that insurers buy to shield themselves from catastrophes. The new measures largely would attempt to “backstop” both private insurers and state-run insurance programs by inserting the federal government into the insurance and reinsurance markets.

The bill’s major components would set up a “National Catastrophe Risk Consortium,” which states facing risks from major natural disasters such as hurricanes and earthquakes could join; allow the Treasury to guarantee bonds issued by state-run catastrophe insurance bodies (such entities currently exist only in California and Florida); and have the Treasury coordinate group purchasing of reinsurance for state funds.

The bill has support from some large insurance companies and elected officials in coastal states, who say it will go a long way toward solving major problems with insurance affordability and accessibility. A variety of environmental, free market, taxpayer, insurance, and reinsurance groups have lined up in opposition to the bill, saying it could cost taxpayers billions of dollars and do significant damage to the environment.

The following articles address some of these concerns and examine the Homeowners’ Defense Act debate from multiple perspectives.


Compounding Catastrophe: Why Federal Involvement in State Catastrophe Insurance Is a Bad Idea
This paper from Heartland Policy Analyst Arin Greenwood examines the Homeowners’ Defense Act and its probable effects on home construction, property mitigation, and the private property and casualty insurance markets.

The Economic Effects of Proposals for Federal Natural Catastrophe Reinsurance and New Loan Programs: Who Pays and Who Benefits?
This paper analyzes the terms and costs of several legislative reinsurance proposals, finding most would impose very large costs on taxpayers in most states and unnecessarily displace private insurance and reinsurance arrangements.

An Economic Assessment of the Homeowners’ Defense Act of 2009
This study presents an economic assessment of the Homeowners’ Defense Act of 2009, legislation that would establish a public-private partnership to deal with the financial costs of major natural catastrophes. The report argues such a partnership could work to improve coverage.

Restoring Florida’s Insurance Market
Eli Lehrer, a senior fellow at The Heartland Institute and James Madison Institute, examines Florida’s property and casualty insurance market and suggests ways to improve the competitive environment. The report includes a section on national catastrophe insurance proposals.

National Catastrophe Insurance Program: A Framework for Discussion
This document by the Florida Office of Insurance Regulation explains the rationale and design of the National Catastrophe Insurance Program (NCIP), describing the three levels of the program: community, state, and national components.

Insurance Information Institute Issues Updates: Reinsurance
This Issue Update provides background on reinsurance, examining several recent developments at the state and national levels, and looks at national catastrophe fund proposals.

Coastal Disaster Insurance in the Era of Global Warming
Justin R. Pidot of the Environmental Law & Policy Institute at Georgetown University examines congressional proposals for an expanded role in providing insurance to property owners threatened by hurricanes and other coastal storms. Pidot concludes many of the current proposals are misguided and the government should “stay out of the insurance business and allow private companies to provide disaster coverage that reflects its true market cost.”

Ensuring Disaster
Eli Lehrer writes in the American Spectator about the inherent risks of a national catastrophe insurance program, using the deficiencies of the National Flood Insurance Program (NFIP) as a model.

Facing Mother Nature
Martin F. Grace and Robert W. Klein examine the trend toward attacking insurers for high property and casualty rates instead of working with insurers to find the root causes of high rates.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Finance, Insurance & Real Estate Web site at http://www.firepolicy-news, The Heartland Institute’s Web site at, and PolicyBot, Heartland’s free online research database, at

If you have any questions about this issue or The Heartland Institute, you may contact Legislative Specialist Matthew Glans at 312/377-4000 or [email protected].