Homeowners' Defense Act of 2007

HOMEOWNERS' DEFENSE ACT OF 2007

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Mrs. CAPITO. Mr. Chairman, I yield myself such time as I may consume.

First of all, I would like to thank the two gentlemen from Financial Services from Florida for bringing this bill forward.

Mr. Chairman, we are all concerned about insurance rates that are increasing in Florida and other States. Representatives Brown-Waite, Putnam, Buchanan and Feeney have all been very effective and passionate advocates for their constituencies, and I would like to commend them for their hard work.

We can all agree that many States are facing considerable problems with the affordability of homeowners insurance. However, at this point, there is no consensus that H.R. 3355 is the best solution to the problem. In fact, there is quite a bit of disagreement amongst a broad spectrum as to what is the best manner to address this problem. Instead of granting long-term relief to middle-income coastal homeowners confronted with rising insurance costs, this bill could potentially place taxpayers at risk for bailing out insolvent State insurance companies.

In the past few years, some of the largest hurricanes on record tore through the gulf coast and coastal Florida. Some of the affected States have tried to protect their local markets, to limit rate increases, force coverage, or restrict market freedom. Unfortunately, these efforts have had severe unintended consequences and have done little to lower the cost of insurance for consumers. Competition has been reduced and homeowners have been left with fewer choices. Ironically, State initiatives designed to secure more coverage for their constituents have resulted in less affordability.

Florida created Citizens Property Insurance Corporation in 2002 because private insurers have reservations about insuring risky coastal development. While Citizens was supposed to be an insurer of last resort, it is now Florida's largest insurer, with over 1.3 million policyholders, and a total exposure of $434 billion, yet only enough funding to pay approximately $9.4 billion in claims. This undercapitalization means that if a major hurricane hits Florida, Citizens could be bankrupt by hundreds of billions of dollars.

To bring down the cost of insurance even more, Florida created a State reinsurance fund to sell inexpensive reinsurance to private companies to encourage them to write more business in the State. This fund has never had enough cash on hand to pay claims and has driven out the global reinsurance market, recouping losses through taxpayer assessments. According to a Georgetown University report released last summer, the Florida catastrophe fund offers $32 billion in coverage and has $1 billion on hand.

Of the two main titles of the bill, H.R. 3355, the first doesn't add anything new that States cannot already do on their own. The second one makes inexpensive federally subsidized loans available to State insurance companies that are curtailing the private market, resulting in less competition and higher costs to the customer. And I will add here that anytime you're federally subsidizing somebody, that's a cost to every single taxpayer in the country.

The Congressional Budget Office estimates that over the next 5 years implementing this bill would cost $75 million, but even this number seriously underestimates the true cost to the American taxpayers. CBO concluded that few States would actually be interested in these loans and that they would only be made on rare occasions. Nevertheless, taxpayers could potentially be exposed to billions of dollars, leaving them with an enormous cost of capital for the loan's duration and subjecting leaders here in Congress to the inevitable pressure to later forgive loans at the taxpayers' expense.

Mr. Chairman, the federally headed consortium provided for in this bill, while a novel approach, likely offers nothing but an implicit Federal backing for any insured securities, much like the GSEs; not to mention States already have the ability to engage in these pooling arrangements at this day. Further emphasized in the President's Statement of Administration Policy on this bill: ``There is no need for a Federal role because States are currently free to associate to address catastrophic risk.''

It is also debatable whether securitization represents any significant advantages over the sophisticated private reinsurance markets. According to the Georgetown Environmental Law and Policy Institute: ``The mere creation of this consortium would likely skew insurance premiums and encourage unwise development.''

Of concern as well is that the Treasury would make loans to State catastrophe programs. Florida is currently the only State with a reinsurance fund that would qualify for these loans, but there is no doubt that this bill would encourage other States to create these programs, most likely in the Florida mode, further undermining the private market.

The legislation at hand even allows an interim period where other state-run insurers, such as the financially troubled Citizens in Florida, could receive these loans. We should think twice about bankrolling State insurance companies. A Federal loan to an insolvent State catastrophe fund sounds eerily similar to me to the Federal Government's ongoing loan to the

National Flood Insurance Program, which is currently carrying $18 billion in debt.

Republicans will offer a number of critical amendments today to try to steer this debate towards fiscal responsibility, mitigation, and free market competition. We will consider an amendment by Congressman Shays to replace the text of the bill with a bipartisan, blue-ribbon commission to report to Congress specific proposals to improve the affordability and availability of national catastrophe insurance. It would be very prudent of this body to take a step back, allow for further study, and gain a consensus that we do not have on this proposal before us today.

Mr. Chairman, we need to be careful when confronting this very complex issue affecting millions of homeowners that could expose all American taxpayers to huge liabilities, and we shouldn't rush to judgment for an appropriate response.

All of us Members of Congress here know that natural disasters can strike anywhere and everywhere in this country; and by no means are we saying, in opposition to this bill, that we shouldn't have the American response of a helping hand. We just don't feel that this is the right way to do it. We need to work together on bipartisan reforms to address market dysfunction. I think H.R. 3355 falls short on that standard.

There will be many productive ideas put forward this afternoon that will improve the legislation that we're considering; however, if these are not adopted, I would urge my colleagues to vote against this bill.

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