By David Hess

WASHINGTON (April 27, 2010) - Legislation to provide federal backing for state-run re-insurance programs emerged Tuesday from the House Financial Services Committee, as members sought to ease the burden of catastrophic losses from recurring natural disasters.

Voting 39-26 [Vote 5] to move the bill to the floor, the committee authorized the Secretary of Treasury to "make available for purchase [to states] contracts for reinsurance coverage" to help them cover losses from major incidents such as tornadoes, hurricanes, earthquakes and other destructive forces.

The federal government's potential exposure to claims payments in any year could not exceed $200 billion, although the state reinsurance funds would bear the brunt of the expenses - and Congress could set yearly limits on the amount of contracts that Treasury could reinsure. Rates charged for such policies would have to be calculated by actuaries.

Florida Democrat Ron Klein, chief sponsor of H.R. 2555, said a mounting succession of catastrophic events has driven homeowners' insurance rates beyond the reach of many families and heavily taxed the ability of state disaster agencies to surmount the cost of damages wrought by them. Beyond that, he said, several private casualty insurers have fled states, mostly along the seacoasts, because of the soaring cost of claims.

Although a handful of Republicans (Floridians and a Californian) voted with Democrats to move the bill out of committee, most opposed it on grounds of its potential cost and their fear that it would shift risks from homeowners to the federal government or from vulnerable states to states less likely to suffer catastrophic events.

"Given the big deficits we're running," said ranking member Spencer Bachus, R-Ala., "this is the wrong time to be exposing the federal government to such high risks."

Both committee chairman Barney Frank, D-Mass., and Klein insisted that federal taxpayers were highly unlikely to run those risks and pointed out that state enrollment in a proposed consortium to pool the risks was entirely voluntary.

In agreement with Klein that private coverage of disasters is hard to find, Rep. Adam Putnam, R-Fla., said the federal government "will always be the backstop [for rescuing] property owners from mega-disasters" simply because the private insurance industry won't take on the risk. "This bill will prepare us to deal with it in a systematic way. At the end of the day, Congress will be on the hook for it, so why not plan and prepare for it."

That approach finally carried the day in the committee. But not before opponents tried to sidetrack the bill on a substitute amendment by Reps. Shelley Moore Capito, R-W.Va., and Scott Garrett, R-N.J., to set up a commission to conduct an exhaustive study of the issue. It was rejected, 42-24 [Vote 1].

Rep. Ed Royce, R-Calif., also proposed to strike from the bill enabling language that provides states with the authority to make disaster reinsurance coverage available. It went down, 38-27 [Vote 2]. A Garrett amendment directing the Government Accountability Office to certify that state reinsurance programs are actuarially sound was defeated, 41-24 [Vote 3]. And a proposal by Rep. Randy Neugebauer, R-Texas, to delay implementation of H.R. 2555 until the federal budget is balanced, was rejected, 43-22 [Vote 4].

Other amendments adopted by voice vote included a proposal by Putnam and altered by Rep. John Campbell, R-Calif., to assure that state programs followed essentially the same actuarial standards as private insurers; an amendment by Rep. Michele Bachmann, R-Minn., to prohibit the consortium members from employing lobbyists or contributing money to any state or federal candidate for office; a Campbell amendment that trims the cost of the bill; a Putnam amendment to require state officials to notify policyholders of any estimate of assessments or surcharges due to catastrophic damages, and an amendment by Rep. Walt Minnick, D-Idaho, barring state reinsurers from covering flood losses for properties in areas with repeated flooding.

The committee rejected a Bachmann amendment to "sunset" the legislation at the end of 2014.

Roll call vote to be added later.