WASHINGTON, DC – Last week, Congressman Bill Delahunt joined with his colleagues in the House to urge Senate Majority Leader Harry Reid to support legislation that will help coastal states like Massachusetts expand access to affordable homeowners insurance.

“It is without question that the rising price of homeowners insurance affects everyone who lives in a coastal community so it is vital that the Senate take up this legislation before Congress breaks for the holidays,” Delahunt said. “This bill addresses the national homeowners insurance crisis and will certainly help those who live in my district by reducing the cost of individual policies.”

The House of Representatives passed H.R. 3355, the Homeowners Defense Act of 2007 by a vote of 258 to 155 at the beginning of November. It is now waiting for consideration before the United States Senate. Delahunt joined the authors of the bill, Congressmen Tim Mahoney and Ron Klein as well as 14 other members in sending a letter to Senate Majority Leader Harry Reid.

The text of the letter is as follows:

The Honorable Harry Reid
Majority Leader
United States Senate
S-221 Capitol Building
Washington, DC 20510

Dear Majority Leader Reid:

We are writing today in support of the Homeowners’ Defense Act (H.R. 3355), and request that you schedule a vote in the Senate on this legislation as soon as possible. As supporters of the House version of the Homeowners’ Defense Act, which passed the House by a vote of 258-155, we believe it is important to have this measure in place before the next disaster strikes.

The homeowners’ insurance crisis is not unique to one state or region. Up and down the Eastern Seaboard policyholders are receiving non-renewal letters and notices of increased premiums. Likewise, the lack of affordable and adequate earthquake insurance in California has left many homeowners under-insured, and American taxpayers exposed to billions of dollars in liability.

Today, the federal government’s disaster response policy is the “bailout” that exposes every American taxpayer to unlimited liability regardless of where they live. In the aftermath of Hurricane Katrina, taxpayers spent more than $110 billion to rebuild the Gulf Coast with no hope of being repaid. That means that taxpayers in your home State of Nevada spent a total of $911 million which will not be paid back.

The Homeowners’ Defense Act expands the private market and lowers homeowner premium by working with states on a voluntary basis to find ways to pool risk so that they catastrophe bond market cane be expanded and priced more competitively. The bill recognizes that no one got into the homeowners insurance business to underwrite a catastrophe, whether it is an “act of war” or an “act of nature.” The market’s instability is due to projected losses being larger than the industry’s ability to pay. Finally this bill is a financially responsible approach that will end the policy of “bailout,” while allowing for states to responsibly plan for disasters ahead of time.

Again we ask that you quickly schedule a vote on the Homeowners’ Defense Act. Thank you for your attention to this matter.

To read a pdf copy of the letter, please click here.

Specifically the Homeowners Defense Act of 2007 will:

Allow states to combine their natural disaster risks together through a consortium.  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 by allowing states to responsibly plan for disasters before a catastrophic event occurs.

Create 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.

Contain 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.  

Set 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.

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