November 8, 2007
Contact: Robin Winchell (202) 225-4031
WASHINGTON, D.C. - U.S. Rep. Charlie Melancon (D-LA) spoke on the floor of
the House today in support of legislation he co-sponsored to tackle the rising
cost of homeowners insurance in coastal communities. The Homeowners'
Defense Act (H.R. 3355), which Rep. Melancon introduced with Rep. Ron Klein
(D-FL) and Rep. Tim Mahoney (D-FL), is a bipartisan bill designed to address
the growing crisis in the availability and affordability of homeowners'
insurance. The legislation focuses on stabilizing the catastrophe
insurance market by expanding private industry's capacity to cover natural
disasters and helping states to better manage risk.
In his speech, Rep. Melancon told his colleagues of several
homeowners from south Louisiana
who had written him recently about their skyrocketing homeowners' insurance
premiums:
Rep. Melancon said, "Nolan Falgout of Thibodaux,
Louisiana, wrote to me and said, ‘In the event we do not get a handle on this
issue, this will become the next reason why your constituents who have enjoyed
growing up in this section of ‘Cajun' Louisiana will no longer be able to
afford to live here."
Rep. Melancon continued, "The victims of these
hurricanes, the victims of the wildfires, and the victims of unforeseen future
natural disasters all deserve to know that the insurance system will not
abandon them when they need it the most. I believe that H.R. 3355 will
provide for this stability and the long-term solution we need to solve this
insurance crisis so that America's
families will not have to abandon their communities and can return home."
Video of Rep. Melancon's floor speech can be viewed here: http://www.youtube.com/watch?v=5moFzzax-kc
The full text of his speech, as prepared for delivery, is at the bottom of this
news release.
Following are highlights of the bill's provisions.
Title I: Natural Catastrophe Risk
Consortium
Allows states to combine their
natural disaster risks together through a consortium. The bill would allow states to responsibly plan for
disasters before a catastrophic event occurs. The bill creates a Natural
Catastrophe Risk Consortium, which provides a venue for state-sponsored
reinsurance funds to voluntarily bundle their catastrophic risk with one
another, and then transfer that risk to the private markets through the
use of catastrophe bonds and reinsurance contracts. Following the risk
transfer, state-sponsored reinsurance funds will be better protected and
increasingly able to provide a stabilizing effect on the state insurance
market.
Offers a market-based solution to
the current crisis in affordable catastrophe coverage for homeowners. This bipartisan solution to the homeowners' insurance
crisis will decrease the need for government bailouts when a natural
catastrophe hits. The bill is a responsible approach to the homeowners'
insurance crisis which expands coverage and stabilizes the market.
Restores reliability and
predictability to the homeowners' insurance industry. This bill restores reliability and predictability to
the homeowners' insurance industry by minimizing the price volatility in
insurance following a large natural disaster.
Title II: National Homeowners'
Insurance Stabilization Program
Creates a federal program to provide
loans to state reinsurance programs impacted by severe natural disasters. The bill creates a National Homeowners' Insurance
Stabilization Program within the Treasury Department to provide loans to state
reinsurance programs in the event of a severe natural disaster, while also
encouraging those programs to accumulate capital sufficient to pay their
reasonably anticipated losses. By doing so, the Federal Government will
be providing the capital needed to begin the rebuilding process.
Specifically, the program makes available two types of loans: liquidity loans
and catastrophic loans. Liquidity loans would allow a state's reinsurance
fund to cover its liability in the event that it is not fully funded.
Catastrophic loans are available to a state's reinsurance fund after insured
losses in the state exceed 150 percent of the state's direct written premium
for property and casualty insurance.
Contains provisions to minimize the
cost to taxpayers. The provisions creating the
federal loan program are designed to minimize the costs to taxpayers.
Strict requirements are placed on state reinsurance programs in order to
qualify for the federal loans. In addition, loan terms and "penalty"
rates are designed so that the Federal Government is the lender of last
resort.
General Provisions
Sets strict requirements that state
reinsurance programs must satisfy in order to participate in the bill's
programs. The bill sets out specific
requirements that state catastrophe reinsurance programs must satisfy before
the Treasury Secretary can certify the program as a Qualified Reinsurance
Program. Only Qualified Reinsurance Programs may participate in the
National Catastrophe Risk Consortium and the federal loan program created by
the bill. To be certified as a Qualified Reinsurance Program, a state
program must reinsure only risks in their state deemed truly catastrophic by
the Treasury Secretary. Furthermore, participating states must also
require state insurance and reinsurance programs to establish risk-based rates.
These common-sense provisions will ensure that states are
able to provide for their citizens in the wake of a devastating
event.
Since Hurricanes Katrina and Rita, premiums in south Louisiana have
skyrocketed and many homeowners have had their policies cancelled. As
private insurance companies have pulled out of coastal Louisiana, more and more homeowners have had
to turn to the state-sponsored "insurer of last resort," Louisiana
Citizens.
Rep. Melancon has been working in Congress on several pieces
of legislation to tackle the severe need for affordable homeowner's insurance
in coastal Louisiana.
He is also a co-sponsor of H.R. 920, the Multi Peril
Insurance Act of 2007, which passed the House in September and is awaiting
further action in the Senate. The bill calls for a major expansion of the
federal National Flood Insurance Program to allow NFIP policyholders to
purchase windstorm coverage directly from the federal government, in addition
to flood insurance. The bill was introduced by Rep. Gene Taylor of Mississippi, whose home
was destroyed by Hurricane Katrina.
In July, Rep. Melancon testified before a
subcommittee of the House Committee on Financial Services on the severe need
for affordable homeowner's insurance in coastal Louisiana.
# # #
Mr. Chairman,
I am proud to speak out today in
support of H.R. 3355, the Homeowner's Defense Act. Recovering from the
two hurricanes that devastated our state and the Gulf
Coast in 2005 continues to be the most
important challenge the people of Louisiana
have ever faced. One of the biggest roadblocks to our recovery remains
the lack of affordable and available property insurance.
However, as we have seen in the past
few weeks with the wildfires that ravaged California,
affordable insurance isn't just a problem for the residents of the Gulf Coast.
This is a nation-wide problem that needs our immediate attention and a
practical and effective long-term solution. I believe that H.R. 3355
offers that long-term solution.
In the wake of Hurricanes Katrina
and Rita in 2005, after the victims of these storms suffered two of the worst
natural disasters in this country's history, our people were forced through the
indignity of another battle - a battle with their insurance companies.
All along the Gulf
Coast, insurance
companies have packed up and moved out; they have canceled their policies,
refused to write new ones, or raised their rates exponentially with less
coverage and higher deductibles. In Louisiana,
more and more people are being forced to turn to Louisiana's state-sponsored "insurer of last
resort," and again, paying premiums way above market rates. For those who
were "lucky" enough to have their policies renewed, they are now being hit with
skyrocketing premium increases, often as much as two, three, or four times what
they paid before - and some even higher.
The district in Louisiana that I represent is entirely in
the "new" hard-to-insure part of the state; and every day I get calls, emails,
and letters from constituents begging Congress to do something about the
insurance crisis. Here is just a sampling of the letters that I
have received [HOLD UP LETTERS]:
- Roy Barrios of Lafourche Parish wrote me saying that Allstate
recently cancelled his homeowners' insurance policy and he now will have to pay
three times as much for coverage from Louisiana's
insurer of last resort. He was only two months shy of being covered by Louisiana's consumer
protection laws that would have kept his policy from being cancelled, although
he noted that Allstate is still happy to renew his more-profitable car
insurance policy.
- Jeanette Tanguis of Houma,
Louisiana, said her premium
increased $200 PER MONTH. In a letter to me she wrote, "Having spent most
of my life living in Terrebonne Parish, it never occurred to me that I would be
forced to move from the place I love and have called home for most my
life. Unfortunately, my family and I are being forced to make this sad
decision."
- Similarly, Nolan Falgout of Thibodaux,
Louisiana, wrote to me and said, "In the event
we do not get a handle on this issue, this will become the next reason why your
constituents who have enjoyed growing up in this section of "Cajun" Louisiana will no longer
be able to afford to live here.
These are only a few of the many
stories I hear from people who are being forced to leave their homes and
communities.
If the claimants from the two
hurricanes had been awarded the settlements that they were entitled to from the
insurance companies, this would have not been an issue that requires the
attention of Congress. Sadly, this is not the case.
It is time we recognize that market
failures exist. The victims of these hurricanes, the victims of the
wildfires, and the victims of unforeseen future natural disasters all deserve
to know that the insurance system will not abandon them when they need it the
most. I believe that H.R. 3355 will provide for this stability and the
long-term solution we need to solve this insurance crisis so that America's
families will not have to abandon their communities and can return home.
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