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Politics

House confronts insurance crisis

Leaders ponder some unexpected solutions for a widespread problem.

By WES ALLISON
Published September 14, 2006

WASHINGTON - With skyrocketing prices for property insurance emerging as a national issue, leaders of a House subcommittee launched an investigation Wednesday with an eye toward passing reforms before the next hurricane season.

It seemed odd, coming from several conservative Republicans, but the mood at the first of what promises to be a string of congressional hearings on property insurance leaned toward federal intervention, from setting national building standards to establishing a national fund for covering major disasters.

Members of the committee, particularly those from Florida, also took issue with insurance company assertions that the free market system is working.

Rep. Clay Shaw, R-Fort Lauderdale, noted that Citizens Property Corp. - Florida's state-run company for homeowners who can't get private insurance - now holds policies on one of four Florida homes. And this year, it needed an infusion of $1-billion to stay solvent.

Without changes, he said, insurance will become prohibitively expensive or simply unavailable, leading Florida over an "economic cliff" as the housing market collapses and businesses leave the state.

"That is not the market working," Shaw said.

Rep. Richard Baker, R-La., chairman of the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, said he hoped to solve the problem "without draconian federal intervention," but he said it might be necessary.

Industry representatives testified there's no market crisis, just an unhappy convergence: The increase in strength and frequency of hurricanes lately has cost insurers money, particularly in Florida and the Gulf Coast. Meanwhile, population and property values have increased, leaving insurers no option but to raise rates or reduce risks by refusing to insure some properties.

"I don't think that the government at any level is inclined or prepared to take over that responsibility," said Marc Racicot, president of the American Insurance Association.

Insurance is now regulated by states, and several lawmakers acknowledged that getting Congress deeply involved would face some resistance.

The committee plans to work through spring with input from insurers, builders, property owners and state regulators, and outside experts. Among the plans lawmakers are likely to consider:

- Establishing a national catastrophic insurance fund, financed through insurance premiums, to help ease losses after major disasters. Shaw and Rep. Ginny Brown-Waite, R-Brooksville, have sponsored a bill to set one up.

- Allow insurance companies to build tax-free reserves to cover losses after a major disaster.

- Set federal minimums for building codes.

- Allow homeowners to establish tax-free savings accounts, like those used to help pay for health care, that can be used to cover insurance deductibles and repairs.

Florida Insurance Commissioner Kevin McCarty, who testified Wednesday, said it seems natural to blame the crisis on recent disasters, such as hurricanes that pummeled Florida and the Gulf Coast last year.

But McCarty, chairman of the property and casualty committee of the National Association of Insurance Commissioners, said the crisis is plaguing other areas as well, including South Carolina, which has one of the nation's least regulated markets.

Members from Massachusetts, New York and Missouri complained their constituents are hurting, too.

[Last modified September 14, 2006, 05:44:41]