Issue memo, May 14, 1998

MfiY-15-1998 15=28 REP. ROBERT L. EHRLICH JR. 202 225 3094 P.04/05 ISSUE MEMO C May 14, 1998 To: RLE, SK From: J.P. Issue: H.R. 219, the Homeowners’ Insurance Availability Act of 1997. Dear Bob: The purpose of this memo is to provide you with an analysis of H.R. 219, the Homeowners' Insurance Availability Act of 1997, as passed by the Housing Subcommittee. With respect to the issue of beach replenishment, this legislation only affects residential homes. To date, Г have not been able to locate any past or present bills that deal with beach replenishment. Background: When major natural disasters, such as Hurricane Andrew and the Northridge Earthquakes, strike towns and communities, residents and businesses suffer severe damages. Natural disaster insurance often provides the only means to recover from the unexpected and unpreventable tragedies. Unfortunately, most insurance companies either cannot adequately handle major natural disaster claims or offer insurance in disaster prone areas at exorbitant rates (or not at all). In other words, the private market has not developed enough to sufficiently prepare for natural disasters. Accordingly, there exists a limited need for disaster rc-insurance from an entity that can (1) spread risk nationwide, (2) handle claims over an extended period of time, and (3) will likely be involved in any cataclysmic event — the Federal government. Legislation: Congressman Lazio has introduced H.R. 219, the Homeowners ' Insurance Availability Act , to permit federal assistance in providing re-insurance to qualified states. Eligible states are those that establish state insurance or re-insurance programs. Currently, Florida, California, and Hawaii have state insurance programs. Furthermore, states must dedicate 10% of their funds to mitigation programs to qualify for federal re-insurancc. H.R. 219 covers residential property losses from earthquakes, hurricanes, and typhoons. According to the bill, the Treasury Department will establish the Disaster Insurance Fund to accept the proceeds from the sale of re-insurance contracts, borrowed funds, and other investments. In addition, a National Commission is established to monitor the Disaster Insurance Fund. Analysis: H.R. 219 is a good first step to providing coverage in disaster prone areas. This legislation is timely because there is no significant disaster threatening the United States. The Housing Subcommittee approve H.R. 219 (16-6). The next step is consideration by the Banking Committee. (