II 

110TH CONGRESS 

1ST SESSION S. 928 

To establish a program to provide more protection at lower cost through 

a national backstop for State natural catastrophe insurance programs 

to help the United States better prepare for and protect its citizens 

against the ravages of natural catastrophes, to encourage and promote 

mitigation and prevention for, and recovery and rebuilding from such 

catastrophes, to better assist in the financial recovery from such catastrophes, and to develop a rigorous process of continuous improvement. 

IN THE SENATE OF THE UNITED STATES 

MARCH 20, 2007 

Mr. NELSON of Florida (for himself and Mr. MARTINEZ) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs 

A BILL 

To establish a program to provide more protection at lower 

cost through a national backstop for State natural catastrophe insurance programs to help the United States 

better prepare for and protect its citizens against the 

ravages of natural catastrophes, to encourage and promote mitigation and prevention for, and recovery and 

rebuilding from such catastrophes, to better assist in 

the financial recovery from such catastrophes, and to 

develop a rigorous process of continuous improvement. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 


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1 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

2 (a) SHORT TITLE.—This Act may be cited as the 

3 ‘‘Homeowners Protection Act of 2007’’. 

4 (b) TABLE OF CONTENTS.—The table of contents for 

5 this Act is as follows: 

Sec. 1. Short title; table of contents. 

Sec. 2. Congressional findings. 

Sec. 3. National Commission on Catastrophe Preparation and Protection. 

Sec. 4. Program authority. 

Sec. 5. Qualified lines of coverage. 

Sec. 6. Covered perils. 

Sec. 7. Contracts for reinsurance coverage for eligible State programs. 

Sec. 8. Minimum level of retained losses and maximum Federal liability. 

Sec. 9. Consumer Hurricane, Earthquake, Loss Protection (HELP) Fund. 

Sec. 10. Regulations. 

Sec. 11. Termination. 

Sec. 12. Annual study concerning benefits of the Act. 

Sec. 13. GAO study of the National Flood Insurance Program and hurricanerelated flooding. 

Sec. 14. Definitions. 

6 SEC. 2. FINDINGS. 

7 Congress finds that— 

8 (1) America needs to take steps to be better 

9 prepared for and better protected from catastrophes; 

10 (2) the hurricane seasons of 2004 and 2005 are 

11 startling reminders of both the human and economic 

12 devastation that hurricanes, flooding, and other nat13 ural disasters can cause; 

14 (3) if a repeat of the deadly 1900 Galveston 

15 hurricane occurred again it could cause thousands of 

16 deaths and over $36,000,000,000 in loss; 

17 (4) if the 1906 San Francisco earthquake oc18 curred again it could cause thousands of deaths, disVerDate Aug 31 2005 23:10 Mar 21, 2007 Jkt 059200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S928.IS S928

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1 place millions of residents, destroy thousands of 

2 businesses, and cause over $400,000,000,000 in loss; 

3 (5) if a Category 5 hurricane were to hit Miami 

4 it could cause thousands of deaths and over 

5 $50,000,000,000 in loss and devastate the local and 

6 national economy; 

7 (6) if a repeat of the 1938 ‘‘Long Island Ex8 press’’ were to occur again it could cause thousands 

9 of deaths and over $30,000,000,000 in damage, and 

10 if a hurricane that strong were to directly hit Man11 hattan it could cause over $150,000,000,000 in 

12 damage and cause irreparable harm to our Nation’s 

13 economy; 

14 (7) a more comprehensive and integrated ap15 proach to dealing with catastrophes is needed; 

16 (8) using history as a guide, natural catas17 trophes will inevitably place a tremendous strain on 

18 homeowners’ insurance markets in many areas, will 

19 raise costs for consumers, and will jeopardize the 

20 ability of many consumers to adequately insure their 

21 homes and possessions; 

22 (9) the lack of sufficient insurance capacity and 

23 the inability of private insurers to build enough cap24 ital, in a short amount of time, threatens to increase 

25 the number of uninsured homeowners, which, in 


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1 turn, increases the risk of mortgage defaults and the 

2 strain on the Nation’s banking system; 

3 (10) some States have exercised leadership 

4 through reasonable action to ensure the continued 

5 availability and affordability of homeowners’ insur6 ance for all residents; 

7 (11) it is appropriate that efforts to improve in8 surance availability be designed and implemented at 

9 the State level; 

10 (12) while State insurance programs may be 

11 adequate to cover losses from most natural disasters, 

12 a small percentage of events is likely to exceed the 

13 financial capacity of these programs and the local 

14 insurance markets; 

15 (13) a limited national insurance backstop will 

16 improve the effectiveness of State insurance pro17 grams and private insurance markets and will in18 crease the likelihood that homeowners’ insurance 

19 claims will be fully paid in the event of a large nat20 ural catastrophe and that routine claims that occur 

21 after a mega-catastrophe will also continue to be 

22 paid; 

23 (14) it is necessary to provide a national insur24 ance backstop program that will provide more proVerDate Aug 31 2005 23:10 Mar 21, 2007 Jkt 059200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S928.IS S928

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1 tection at an overall lower cost and that will promote 

2 stability in the homeowners’ insurance market; 

3 (15) it is the proper role of the Federal Govern4 ment to prepare for and protect its citizens from ca5 tastrophes and to facilitate consumer protection, vic6 tim assistance, and recovery, including financial re7 covery; and 

8 (16) any Federal reinsurance program must be 

9 founded upon sound actuarial principles and priced 

10 in a manner that encourages the creation of State 

11 funds and maximizes the buying potential of these 

12 State funds and encourages and promotes prevention 

13 and mitigation, recovery and rebuilding, and con14 sumer education, and emphasizes continuous anal15 ysis and improvement. 

16 SEC. 3. NATIONAL COMMISSION ON CATASTROPHE PREPA17 RATION AND PROTECTION. 

18 (a) ESTABLISHMENT.—The Secretary of the Treas19 ury shall establish a commission to be known as the Na20 tional Commission on Catastrophe Preparation and Pro21 tection. 

22 (b) DUTIES.—The Commission shall meet for the 

23 purpose of advising the Secretary regarding the estimated 

24 loss costs associated with the contracts for reinsurance 


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1 coverage available under this Act and carrying out the 

2 functions specified in this Act, including— 

3 (1) the development and implementation of 

4 public education concerning the risks posed by nat5 ural catastrophes; 

6 (2) the development and implementation of pre7 vention, mitigation, recovery, and rebuilding stand8 ards that better prepare and protect the United 

9 States from catastrophes; and 

10 (3) conducting continuous analysis of the effec11 tiveness of this Act and recommending improve12 ments to the Congress so that— 

13 (A) the costs of providing catastrophe pro14 tection are decreased; and 

15 (B) the United States is better prepared. 

16 (c) MEMBERS.— 

17 (1) APPOINTMENT AND QUALIFICATION.—The 

18 Commission shall consist of 9 members, as follows: 

19 (A) HOMELAND SECURITY MEMBER.—The 

20 Secretary of Homeland Security or the Sec21 retary’s designee. 

22 (B) APPOINTED MEMBERS.—8 members 

23 appointed by the Secretary, who shall consist 

24 of— 

25 (i) 1 individual who is an actuary; 


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1 (ii) 1 individual who is employed in 

2 engineering; 

3 (iii) 1 individual representing the sci4 entific community; 

5 (iv) 1 individual representing property 

6 and casualty insurers; 

7 (v) 1 individual representing rein8 surers; 

9 (vi) 1 individual who is a member or 

10 former member of the National Association 

11 of Insurance Commissioners; and 

12 (vii) 2 individuals who are consumers. 

13 (2) PREVENTION OF CONFLICTS OF INTER14 EST.—Members shall have no personal or financial 

15 interest at stake in the deliberations of the Commis16 sion. 

17 (d) TREATMENT OF NON-FEDERAL MEMBERS.— 

18 Each member of the Commission who is not otherwise em19 ployed by the Federal Government shall be considered a 

20 special Government employee for purposes of sections 202 

21 and 208 of title 18, United States Code. 

22 (e) EXPERTS AND CONSULTANTS.— 

23 (1) IN GENERAL.—The Commission may pro24 cure temporary and intermittent services from indi25 viduals or groups recognized as experts in the fields 


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1 of meteorology, seismology, vulcanology, geology, 

2 structural engineering, wind engineering, and hy3 drology, and other fields, under section 3109(b) of 

4 title 5, United States Code, but at a rate not in ex5 cess of the daily equivalent of the annual rate of 

6 basic pay payable for level V of the Executive Sched7 ule, for each day during which the individual pro8 cured is performing such services for the Commis9 sion. 

10 (2) OTHER EXPERTS.—The Commission may 

11 also procure, and the Congress encourages the Com12 mission to procure, experts from universities, re13 search centers, foundations, and other appropriate 

14 organizations who could study, research, and develop 

15 methods and mechanisms that could be utilized to 

16 strengthen structures to better withstand the perils 

17 covered by this Act. 

18 (f) COMPENSATION.— 

19 (1) IN GENERAL.—Each member of the Com20 mission who is not an officer or employee of the 

21 Federal Government shall be compensated at a rate 

22 of basic pay payable for level V of the Executive 

23 Schedule, for each day (including travel time) during 

24 which such member is engaged in the performance 

25 of the duties of the Commission. 


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1 (2) FEDERAL EMPLOYEES.—All members of the 

2 Commission who are officers or employees of the 

3 United States shall serve without compensation in 

4 addition to that received for their services as officers 

5 or employees of the United States. 

6 (g) OBTAINING DATA.— 

7 (1) IN GENERAL.—The Commission and the 

8 Secretary may solicit loss exposure data and such 

9 other information as either the Commission or the 

10 Secretary deems necessary to carry out its respon11 sibilities from governmental agencies and bodies and 

12 organizations that act as statistical agents for the 

13 insurance industry. 

14 (2) OBLIGATION TO KEEP CONFIDENTIAL.— 

15 The Commission and the Secretary shall take such 

16 actions as are necessary to ensure that information 

17 that either deems confidential or proprietary is dis18 closed only to authorized individuals working for the 

19 Commission or the Secretary. 

20 (3) FAILURE TO COMPLY.—No State insurance 

21 or reinsurance program may participate if any gov22 ernmental agency within that State has refused to 

23 provide information requested by the Commission or 

24 the Secretary. 

25 (h) FUNDING.— 


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1 (1) AUTHORIZATION OF APPROPRIATIONS.— 

2 There is authorized to be appropriated— 

3 (A) $10,000,000 for fiscal year 2008 for 

4 the— 

5 (i) initial expenses in establishing the 

6 Commission; and 

7 (ii) initial activities of the Commission 

8 that cannot timely be covered by amounts 

9 obtained pursuant to section 

10 7(b)(6)(B)(iii), as determined by the Sec11 retary; 

12 (B) such additional sums as may be nec13 essary to carry out subsequent activities of the 

14 Commission; 

15 (C) $10,000,000 for fiscal year 2008 for 

16 the initial expenses of the Secretary in carrying 

17 out the program authorized under section 4; 

18 and 

19 (D) such additional sums as may be nec20 essary to carry out subsequent activities of the 

21 Secretary under this Act. 

22 (2) OFFSET.— 

23 (A) OBTAINED FROM PURCHASERS.—The 

24 Secretary shall provide, to the maximum extent 

25 practicable, that an amount equal to any 


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1 amount appropriated under paragraph (1) is 

2 obtained from purchasers of reinsurance cov3 erage under this Act and deposited in the Fund 

4 established under section 9. 

5 (B) INCLUSION IN PRICING CONTRACTS.— 

6 Any offset obtained under subparagraph (A) 

7 shall be obtained by inclusion of a provision for 

8 the Secretary’s and the Commission’s expenses 

9 incorporated into the pricing of the contracts 

10 for such reinsurance coverage, pursuant to sec11 tion 7(b)(6)(B)(iii). 

12 (i) TERMINATION.—The Commission shall terminate 

13 upon the effective date of the repeal under section 11(c). 

14 SEC. 4. PROGRAM AUTHORITY. 

15 (a) IN GENERAL.—The Secretary, in consultation 

16 with the Secretary of Homeland Security, shall carry out 

17 a program under this Act to make homeowners protection 

18 coverage available through contracts for reinsurance cov19 erage under section 7, which shall be made available for 

20 purchase only by eligible State programs. 

21 (b) PURPOSE.—The program shall be designed to 

22 make reinsurance coverage under this Act available— 

23 (1) to improve the availability and affordability 

24 of homeowners’ insurance for the purpose of faciliVerDate Aug 31 2005 23:10 Mar 21, 2007 Jkt 059200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S928.IS S928

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1 tating the pooling, and spreading the risk, of cata2 strophic financial losses from natural catastrophes; 

3 (2) to improve the solvency and capacity of 

4 homeowners’ insurance markets; 

5 (3) to encourage the development and imple6 mentation of mitigation, prevention, recovery, and 

7 rebuilding standards; and 

8 (4) to recommend methods to continuously im9 prove the way the United States reacts and responds 

10 to catastrophes, including improvements to the 

11 HELP Fund established under section 9. 

12 (c) CONTRACT PRINCIPLES.—Under the program es13 tablished under this Act, the Secretary shall offer reinsur14 ance coverage through contracts with covered purchasers, 

15 which contracts shall— 

16 (1) minimize the administrative costs of the 

17 Federal Government; and 

18 (2) provide coverage based solely on insured 

19 losses within a State for the eligible State program 

20 purchasing the contract. 

21 SEC. 5. QUALIFIED LINES OF COVERAGE. 

22 Each contract for reinsurance coverage made avail23 able under this Act shall provide insurance coverage 

24 against residential property losses to— 


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1 (1) homes (including dwellings owned under 

2 condominium and cooperative ownership arrange3 ments); and 

4 (2) the contents of apartment buildings. 

5 SEC. 6. COVERED PERILS. 

6 (a) IN GENERAL.—Each contract for reinsurance 

7 coverage made available under this Act shall cover losses 

8 insured or reinsured by an eligible State program pur9 chasing the contract that are proximately caused by— 

10 (1) earthquakes; 

11 (2) perils ensuing from earthquakes, including 

12 fire and tsunamis; 

13 (3) tropical cyclones having maximum sustained 

14 winds of at least 74 miles per hour, including hurri15 canes and typhoons; 

16 (4) tornadoes; 

17 (5) volcanic eruptions; 

18 (6) catastrophic winter storms; and 

19 (7) any other natural catastrophe peril (not in20 cluding any flood) insured or reinsured under the el21 igible State program for which reinsurance coverage 

22 under section 7 is provided. 

23 (b) RULEMAKING.—The Secretary shall, by regula24 tion, define the natural catastrophe perils described in 

25 subsection (a)(7). 


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1 SEC. 7. CONTRACTS FOR REINSURANCE COVERAGE FOR 

2 ELIGIBLE STATE PROGRAMS. 

3 (a) ELIGIBLE STATE PROGRAMS.—A program shall 

4 be eligible to purchase a contract under this section for 

5 reinsurance coverage under this Act only if the State enti6 ty authorized to make such determinations certifies to the 

7 Secretary that the program complies with the following re8 quirements: 

9 (1) PROGRAM DESIGN.—The program shall be a 

10 State-operated— 

11 (A) insurance program that— 

12 (i) offers coverage for— 

13 (I) homes (which may include 

14 dwellings owned under condominium 

15 and cooperative ownership arrange16 ments); and 

17 (II) the contents of apartments 

18 to State residents; and 

19 (ii) is authorized by State law; or 

20 (B) reinsurance program that is designed 

21 to improve private insurance markets that offer 

22 coverage for— 

23 (i) homes (which may include dwell24 ings owned under condominium and coop25 erative ownership arrangements); and 

26 (ii) the contents of apartments. 


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1 (2) OPERATION.— 

2 (A) IN GENERAL.—The program shall 

3 meet the following requirements: 

4 (i) A majority of the members of the 

5 governing body of the program shall be 

6 public officials. 

7 (ii) The State shall have a financial 

8 interest in the program, which shall not in9 clude a program authorized by State law 

10 or regulation that requires insurers to pool 

11 resources to provide property insurance 

12 coverage for covered perils. 

13 (iii) The State shall not be eligible for 

14 Consumer HELP Fund assistance under 

15 section 9 if a State has appropriated 

16 money from the State fund and not paid it 

17 back to the State fund, with interest. 

18 (iv) Upon receipt of assistance from 

19 the Consumer HELP Fund, each reim20 bursement contract sold by a State shall 

21 provide for reimbursements at 100 percent 

22 of eligible losses. 

23 (v) A State shall be required to utilize 

24 either— 


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1 (I) an open rating system that 

2 permits insurers to set homeowners’ 

3 insurance rates without prior approval 

4 of the State; or 

5 (II) a rate approval process that 

6 requires actuarially sound, risk-based, 

7 self-sufficient homeowners’ insurance 

8 rates. 

9 (B) CERTIFICATION.—A State shall not be 

10 eligible for Consumer HELP Fund assistance 

11 unless the Secretary can certify that such State 

12 is in compliance with the requirement described 

13 in clause (v). 

14 (3) TAX STATUS.—The program shall be struc15 tured and carried out in a manner so that the pro16 gram is exempt from all Federal taxation. 

17 (4) COVERAGE.—The program shall cover perils 

18 enumerated in section 6. 

19 (5) EARNINGS.—The program may not provide 

20 for, nor shall have ever made, any redistribution of 

21 any part of any net profits of the program to any 

22 insurer that participates in the program. 

23 (6) PREVENTION AND MITIGATION.— 

24 (A) IN GENERAL.—The program shall in25 clude prevention and mitigation provisions that 


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1 require that not less $10,000,000 and not more 

2 than 35 percent of the net investment income 

3 of the State insurance or reinsurance program 

4 be used for programs to mitigate losses from 

5 natural catastrophes for which the State insur6 ance or reinsurance program was established. 

7 (B) RULE OF CONSTRUCTION.—For pur8 poses of this paragraph, prevention and mitiga9 tion shall include methods to reduce losses of 

10 life and property, including appropriate meas11 ures to adequately reflect— 

12 (i) encouragement of awareness about 

13 the risk factors and what can be done to 

14 eliminate or reduce them; 

15 (ii) location of the risk, by giving 

16 careful consideration of the natural risks 

17 for the location of the property before al18 lowing building and considerations if struc19 tures are allowed; and 

20 (iii) construction relative to the risk 

21 and hazards, which act upon— 

22 (I) State mandated building 

23 codes appropriate for the risk; 

24 (II) adequate enforcement of the 

25 risk-appropriate building codes; 


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1 (III) building materials that pre2 vent or significantly lessen potential 

3 damage from the natural catas4 trophes; 

5 (IV) building methods that pre6 vent or significantly lessen potential 

7 damage from the natural catas8 trophes; and 

9 (V) a focus on prevention and 

10 mitigation for any substantially dam11 aged structure, with an emphasis on 

12 how structures can be retrofitted so as 

13 to make them building code compli14 ant. 

15 (7) REQUIREMENTS REGARDING COVERAGE.— 

16 (A) IN GENERAL.—The program— 

17 (i) may not, except for charges or as18 sessments related to post-event financing 

19 or bonding, involve cross-subsidization be20 tween any separate property and casualty 

21 lines covered under the program unless the 

22 elimination of such activity in an existing 

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1 tract for reinsurance coverage under this 

2 Act pursuant to paragraph (3); 

3 (ii) shall include provisions that au4 thorize the State insurance commissioner 

5 or other State entity authorized to make 

6 such a determination to terminate the pro7 gram if the insurance commissioner or 

8 other such entity determines that the pro9 gram is no longer necessary to ensure the 

10 availability of homeowners’ insurance for 

11 all residents of the State; and 

12 (iii) shall provide that, for any insur13 ance coverage for homes (which may in14 clude dwellings owned under condominium 

15 and cooperative ownership arrangements) 

16 and the contents of apartments that is 

17 made available under the State insurance 

18 program and for any reinsurance coverage 

19 for such insurance coverage made available 

20 under the State reinsurance program, the 

21 premium rates charged shall be amounts 

22 that, at a minimum, are sufficient to cover 

23 the full actuarial costs of such coverage, 

24 based on consideration of the risks involved 

25 and accepted actuarial and rate making 


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1 principles, anticipated administrative ex2 penses, and loss and loss-adjustment ex3 penses. 

4 (B) APPLICABILITY.—This paragraph shall 

5 apply— 

6 (i) before the expiration of the 2-year 

7 period beginning on the date of the enact8 ment of this Act, only to State programs 

9 which, after January 1, 2008, commence 

10 offering insurance or reinsurance coverage 

11 described in subparagraph (A) or (B), re12 spectively, of paragraph (1); and 

13 (ii) after the expiration of such period, 

14 to all State programs. 

15 (8) OTHER QUALIFICATIONS.— 

16 (A) REGULATIONS.— 

17 (i) COMPLIANCE.—The State program 

18 shall (for the year for which the coverage 

19 is in effect) comply with regulations that 

20 shall be issued under this paragraph by the 

21 Secretary, in consultation with the Na22 tional Commission on Catastrophe Prepa23 ration and Protection established under 

24 section 3. 


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1 (ii) CRITERIA.—The regulations 

2 issued under clause (i) shall establish cri3 teria for State programs to qualify to pur4 chase reinsurance under this section, which 

5 are in addition to the requirements under 

6 the other paragraphs of this subsection. 

7 (B) CONTENTS.—The regulations issued 

8 under subparagraph (A)(i) shall include re9 quirements that— 

10 (i) the State program shall have pub11 lic members on its board of directors or 

12 have an advisory board with public mem13 bers; 

14 (ii) the State program provides ade15 quate insurance or reinsurance protection, 

16 as applicable, for the peril covered, which 

17 shall include a range of deductibles and 

18 premium costs that reflect the applicable 

19 risk to eligible properties; 

20 (iii) insurance or reinsurance cov21 erage, as applicable, provided by the State 

22 program is made available on a non23 discriminatory basis to all qualifying resi24 dents; 


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1 (iv) any new construction, substantial 

2 rehabilitation, and renovation insured or 

3 reinsured by the program complies with 

4 applicable State or local government build5 ing, fire, and safety codes; 

6 (v) the State, or appropriate local gov7 ernments within the State, have in effect 

8 and enforce nationally recognized model 

9 building, fire, and safety codes and con10 sensus-based standards that offer risk re11 sponsive resistance that is substantially 

12 equivalent or greater than the resistance to 

13 earthquakes or high winds; 

14 (vi) the State has taken actions to es15 tablish an insurance rate structure that 

16 takes into account measures to mitigate in17 surance losses; 

18 (vii) there are in effect, in such State, 

19 laws or regulations sufficient to prohibit 

20 price gouging, during the term of reinsur21 ance coverage under this Act for the State 

22 program in any disaster area located with23 in the State; and 

24 (viii) the State program complies with 

25 such other requirements that the Secretary 


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1 considers necessary to carry out the pur2 poses of this Act. 

3 (b) TERMS OF CONTRACTS.—Each contract under 

4 this section for reinsurance coverage under this Act shall 

5 be subject to the following terms and conditions: 

6 (1) MATURITY.—The term of the contract shall 

7 not exceed 1 year or such longer term as the Sec8 retary may determine. 

9 (2) PAYMENT CONDITION.—The contract shall 

10 authorize claims payments for eligible losses only to 

11 the eligible State program purchasing the coverage. 

12 (3) RETAINED LOSSES REQUIREMENT.—For 

13 each event of a covered peril, the contract shall 

14 make a payment for the event only if the total 

15 amount of insurance claims for losses, which are 

16 covered by qualified lines, occur to properties located 

17 within the State covered by the contract, and that 

18 result from events, exceeds the amount of retained 

19 losses provided under the contract (pursuant to sec20 tion 8(a)) purchased by the eligible State program. 

21 (4) MULTIPLE EVENTS.—The contract shall— 

22 (A) cover any eligible losses from 1 or 

23 more covered events that may occur during the 

24 term of the contract; and 


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1 (B) provide that if multiple events occur, 

2 the retained losses requirement under para3 graph (3) shall apply on a calendar year basis, 

4 in the aggregate and not separately to each in5 dividual event. 

6 (5) TIMING OF ELIGIBLE LOSSES.—Eligible 

7 losses under the contract shall include only insur8 ance claims for property covered by qualified lines 

9 that are reported to the eligible State program with10 in the 3-year period beginning upon the event or 

11 events for which payment under the contract is pro12 vided. 

13 (6) PRICING.— 

14 (A) DETERMINATION.—The price of rein15 surance coverage under the contract shall be an 

16 amount established by the Secretary as follows: 

17 (i) RECOMMENDATIONS.—The Sec18 retary shall take into consideration the rec19 ommendations of the Commission in estab20 lishing the price, but the price may not be 

21 less than the amount recommended by the 

22 Commission. 

23 (ii) FAIRNESS TO TAXPAYERS.—The 

24 price shall be established at a level that— 


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1 (I) is designed to reflect the risks 

2 and costs being borne under each re3 insurance contract issued under this 

4 Act; and 

5 (II) takes into consideration em6 pirical models of natural disasters and 

7 the capacity of private markets to ab8 sorb insured losses from natural dis9 asters. 

10 (iii) SELF-SUFFICIENCY.—The rates 

11 for reinsurance coverage shall be estab12 lished at a level that annually produces ex13 pected premiums that shall be sufficient to 

14 pay the expected annualized cost of all 

15 claims, loss adjustment expenses, and all 

16 administrative costs of reinsurance cov17 erage offered under this section. 

18 (B) COMPONENTS.—The price shall consist 

19 of the following components: 

20 (i) RISK-BASED PRICE.—A risk-based 

21 price, which shall reflect the anticipated 

22 annualized payout of the contract accord23 ing to the actuarial analysis and rec24 ommendations of the Commission. 


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1 (ii) ADMINISTRATIVE COSTS.—A sum 

2 sufficient to provide for the operation of 

3 the Commission and the administrative ex4 penses incurred by the Secretary in car5 rying out this Act. 

6 (7) INFORMATION.—The contract shall contain 

7 a condition providing that the Commission may re8 quire a State program that is covered under the con9 tract to submit to the Commission all information on 

10 the State program relevant to the duties of the Com11 mission, as determined by the Secretary. 

12 (8) ADDITIONAL CONTRACT OPTION.— 

13 (A) IN GENERAL.—The contract shall pro14 vide that the purchaser of the contract may, 

15 during a term of such original contract, pur16 chase additional contracts from among those of17 fered by the Secretary at the beginning of the 

18 term, subject to the limitations under section 8, 

19 at the prices at which such contracts were of20 fered at the beginning of the term, prorated 

21 based upon the remaining term as determined 

22 by the Secretary. 

23 (B) TIMING.—An additional contract pur24 chased under subparagraph (A) shall provide 

25 coverage beginning on a date 15 days after the 


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1 date of purchase but shall not provide coverage 

2 for losses for an event that has already oc3 curred. 

4 (9) OTHERS.—The contract shall contain such 

5 other terms as the Secretary considers necessary— 

6 (A) to carry out this Act; and 

7 (B) to ensure the long-term financial integ8 rity of the program under this Act. 

9 (c) PARTICIPATION BY MULTI-STATE CATASTROPHE

10 FUND PROGRAMS.— 

11 (1) IN GENERAL.—Nothing in this Act shall 

12 prohibit, and this Act shall be construed to facilitate 

13 and encourage, the creation of multi-State catas14 trophe insurance or reinsurance programs, or the 

15 participation by such programs in the program es16 tablished pursuant to section 4. 

17 (2) REGULATIONS.—The Secretary shall, by 

18 regulation, apply the provisions of this Act to multi19 State catastrophe insurance and reinsurance pro20 grams. 

21 SEC. 8. MINIMUM LEVEL OF RETAINED LOSSES AND MAX22 IMUM FEDERAL LIABILITY. 

23 (a) AVAILABLE LEVELS OF RETAINED LOSSES.—In 

24 making reinsurance coverage available under this Act, the 

25 Secretary shall make available for purchase contracts for 


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1 such coverage that require the sustainment of retained 

2 losses from covered perils (as required under section 

3 7(b)(3) for payment of eligible losses) in various amounts, 

4 as the Secretary, in consultation with the Commission, de5 termines appropriate and subject to the requirements 

6 under subsection (b). 

7 (b) MINIMUM LEVEL OF RETAINED LOSSES.— 

8 (1) CONTRACTS FOR STATE PROGRAMS.—Sub9 ject to paragraphs (3) and (4) and notwithstanding 

10 any other provision of this Act, a contract for rein11 surance coverage under section 7 for an eligible 

12 State program that offers insurance or reinsurance 

13 coverage described in subparagraph (A) or (B), re14 spectively, of section 7(a)(1), may not be made avail15 able or sold unless the contract requires retained 

16 losses from covered perils in the following amount: 

17 (A) IN GENERAL.—The State program 

18 shall sustain an amount of retained losses of 

19 not less than— 

20 (i) the claims-paying capacity of the 

21 eligible State program, as determined by 

22 the Secretary; and 

23 (ii) an amount, determined by the 

24 Secretary in consultation with the Commis25 sion, that is the amount equal to the eligiVerDate Aug 31 2005 23:10 Mar 21, 2007 Jkt 059200 PO 00000 Frm 00028 Fmt 6652 Sfmt 6201 E:\BILLS\S928.IS S928

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1 ble losses projected to be incurred at least 

2 once every 50 years on an annual basis 

3 from covered perils. 

4 (B) TRANSITION RULE FOR EXISTING PRO5 GRAMS.— 

6 (i) CLAIMS-PAYING CAPACITY.—Sub7 ject to clause (ii), in the case of any eligi8 ble State program that was offering insur9 ance or reinsurance coverage on the date 

10 of the enactment of this Act and the 

11 claims-paying capacity of which is greater 

12 than the amount determined under sub13 paragraph (A)(i) but less than an amount 

14 determined for the program under sub15 paragraph (A)(ii), the minimum level of re16 tained losses applicable under this para17 graph shall be the claims-paying capacity 

18 of such State program. 

19 (ii) AGREEMENT.— 

20 (I) IN GENERAL.—Clause (i) 

21 shall apply to a State program only if 

22 the program enters into a written 

23 agreement with the Secretary pro24 viding a schedule for increasing the 

25 claims-paying capacity of the program 


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1 to the amount determined for the pro2 gram under subparagraph (A)(ii) over 

3 a period not to exceed 5 years. 

4 (II) EXTENSION.—The Secretary 

5 may extend the 5-year period under 

6 subclause (I) for not more than 5 ad7 ditional 1-year periods if the Sec8 retary determines that losses incurred 

9 by the State program as a result of 

10 covered perils create excessive hard11 ship on the State program. 

12 (III) CONSULTATION.—The Sec13 retary shall consult with the appro14 priate officials of the State program 

15 regarding the required schedule and 

16 any potential 1-year extensions. 

17 (C) TRANSITION RULE FOR NEW PRO18 GRAMS.— 

19 (i) 50-YEAR EVENT.—The Secretary 

20 may provide that, in the case of an eligible 

21 State program that, after January 1, 

22 2008, commences offering insurance or re23 insurance coverage, during the 7-year pe24 riod beginning on the date that reinsur25 ance coverage under section 7 is first made 


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1 available, the minimum level of retained 

2 losses applicable under this paragraph 

3 shall be the amount determined for the 

4 State under subparagraph (A)(i), except 

5 that such minimum level shall be adjusted 

6 annually as provided in clause (ii) of this 

7 subparagraph. 

8 (ii) ANNUAL ADJUSTMENT.—Each an9 nual adjustment under this clause shall in10 crease the minimum level of retained losses 

11 applicable under this subparagraph to an 

12 eligible State program described in clause 

13 (i) in a manner such that— 

14 (I) during the course of such 7- 

15 year period, the applicable minimum 

16 level of retained losses approaches the 

17 minimum level that, under subpara18 graph (A)(ii), will apply to the eligible 

19 State program upon the expiration of 

20 such period; and 

21 (II) each such annual increase is 

22 a substantially similar amount, to the 

23 extent practicable. 

24 (D) REDUCTION BECAUSE OF REDUCED

25 CLAIMS-PAYING CAPACITY.— 


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1 (i) AUTHORITY.—Notwithstanding 

2 subparagraphs (A), (B), and (C) or the 

3 terms contained in a contract for reinsur4 ance pursuant to such subparagraphs, if 

5 the Secretary determines that the claims6 paying capacity of an eligible State pro7 gram has been reduced because of payment 

8 for losses due to an event, the Secretary 

9 may reduce the minimum level of retained 

10 losses. 

11 (ii) TERM OF REDUCTION.— 

12 (I) EXTENSION.—The Secretary 

13 may extend the 5-year period for not 

14 more than 5 additional 1-year periods 

15 if the Secretary determines that losses 

16 incurred by the State program as a 

17 result of covered perils create exces18 sive hardship on the State program. 

19 (II) CONSULTATION.—The Sec20 retary shall consult with the appro21 priate officials of the State program 

22 regarding the required schedule and 

23 any potential 1-year extensions. 

24 (E) CLAIMS-PAYING CAPACITY.—For pur25 poses of this paragraph, the claims-paying caVerDate Aug 31 2005 23:10 Mar 21, 2007 Jkt 059200 PO 00000 Frm 00032 Fmt 6652 Sfmt 6201 E:\BILLS\S928.IS S928

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1 pacity of a State-operated insurance or reinsur2 ance program under section 7(a)(1) shall be de3 termined by the Secretary, in consultation with 

4 the Commission, taking into consideration the 

5 claims-paying capacity as determined by the 

6 State program, retained losses to private insur7 ers in the State in an amount assigned by the 

8 State insurance commissioner, the cash surplus 

9 of the program, and the lines of credit, reinsur10 ance, and other financing mechanisms of the 

11 program established by law. 

12 (c) MAXIMUM FEDERAL LIABILITY.— 

13 (1) IN GENERAL.—Notwithstanding any other 

14 provision of law, the Secretary may sell only con15 tracts for reinsurance coverage under this Act in 

16 various amounts that comply with the following re17 quirements: 

18 (A) ESTIMATE OF AGGREGATE LIABIL19 ITY.—The aggregate liability for payment of 

20 claims under all such contracts in any single 

21 year is unlikely to exceed $200,000,000,000 (as 

22 such amount is adjusted under paragraph (2)). 

23 (B) ELIGIBLE LOSS COVERAGE SOLD.—El24 igible losses covered by all contracts sold within 

25 a State during a 12-month period do not exceed 


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1 the difference between the following amounts 

2 (each of which shall be determined by the Sec3 retary in consultation with the Commission): 

4 (i) The amount equal to the eligible 

5 loss projected to be incurred once every 

6 500 years from a single event in the State. 

7 (ii) The amount equal to the eligible 

8 loss projected to be incurred once every 50 

9 years from a single event in the State. 

10 (2) ANNUAL ADJUSTMENTS.—The Secretary 

11 shall annually adjust the amount under paragraph 

12 (1)(A) (as it may have been previously adjusted) to 

13 provide for inflation in accordance with an inflation 

14 index that the Secretary determines to be appro15 priate. 

16 (d) LIMITATION ON PERCENTAGE OF RISK IN EX17 CESS OF RETAINED LOSSES.— 

18 (1) IN GENERAL.—The Secretary may not 

19 make available for purchase contracts for reinsur20 ance coverage under this Act that would pay out 

21 more than 100 percent of eligible losses in excess of 

22 retained losses in the case of a contract under sec23 tion 7 for an eligible State program, for such State. 

24 (2) PAYOUT.—For purposes of this subsection, 

25 the amount of payout from a reinsurance contract 


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1 shall be the amount of eligible losses in excess of re2 tained losses multiplied by the percentage under 

3 paragraph (1). 

4 SEC. 9. CONSUMER HURRICANE, EARTHQUAKE, LOSS PRO5 TECTION (HELP) FUND. 

6 (a) ESTABLISHMENT.—There is established within 

7 the Treasury of the United States a fund to be known 

8 as the Consumer HELP Fund (in this section referred 

9 to as the ‘‘Fund’’). 

10 (b) CREDITS.—The Fund shall be credited with— 

11 (1) amounts received annually from the sale of 

12 contracts for reinsurance coverage under this Act; 

13 (2) any amounts borrowed under subsection 

14 (d); 

15 (3) any amounts earned on investments of the 

16 Fund pursuant to subsection (e); and 

17 (4) such other amounts as may be credited to 

18 the Fund. 

19 (c) USES.—Amounts in the Fund shall be available 

20 to the Secretary only for the following purposes: 

21 (1) CONTRACT PAYMENTS.—For payments to 

22 covered purchasers under contracts for reinsurance 

23 coverage for eligible losses under such contracts. 

24 (2) COMMISSION COSTS.—To pay for the oper25 ating costs of the Commission. 


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1 (3) ADMINISTRATIVE EXPENSES.—To pay for 

2 the administrative expenses incurred by the Sec3 retary in carrying out the reinsurance program 

4 under this Act. 

5 (4) TERMINATION.—Upon termination under 

6 section 11, as provided in such section. 

7 (d) BORROWING.— 

8 (1) AUTHORITY.—To the extent that the 

9 amounts in the Fund are insufficient to pay claims 

10 and expenses under subsection (c), the Secretary— 

11 (A) may issue such obligations of the Fund 

12 as may be necessary to cover the insufficiency; 

13 and 

14 (B) shall purchase any such obligations 

15 issued. 

16 (2) PUBLIC DEBT TRANSACTION.—For the pur17 pose of purchasing any such obligations under para18 graph (1)— 

19 (A) the Secretary may use as a public debt 

20 transaction the proceeds from the sale of any 

21 securities issued under chapter 31 of title 31, 

22 United States Code; and 

23 (B) the purposes for which such securities 

24 are issued under such chapter are hereby exVerDate Aug 31 2005 23:10 Mar 21, 2007 Jkt 059200 PO 00000 Frm 00036 Fmt 6652 Sfmt 6201 E:\BILLS\S928.IS S928

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1 tended to include any purchase by the Secretary 

2 of such obligations under this subsection. 

3 (3) CHARACTERISTICS OF OBLIGATIONS.—Obli4 gations issued under this subsection shall be in such 

5 forms and denominations, bear such maturities, bear 

6 interest at such rate, and be subject to such other 

7 terms and conditions, as the Secretary shall deter8 mine. 

9 (4) TREATMENT.—All redemptions, purchases, 

10 and sales by the Secretary of obligations under this 

11 subsection shall be treated as public debt trans12 actions of the United States. 

13 (5) REPAYMENT.—Any obligations issued under 

14 this subsection shall be— 

15 (A) repaid including interest, from the 

16 Fund; and 

17 (B) recouped from premiums charged for 

18 reinsurance coverage provided under this Act. 

19 (e) INVESTMENT.—If the Secretary determines that 

20 the amounts in the Fund are in excess of current needs, 

21 the Secretary may invest such amounts as the Secretary 

22 considers advisable in obligations issued or guaranteed by 

23 the United States. 

24 (f) PROHIBITION OF FEDERAL FUNDS.—Except for 

25 amounts made available pursuant to subsection (d) and 


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1 section 3(h), no further Federal funds shall be authorized 

2 or appropriated for the Fund or for carrying out the rein3 surance program under this Act. 

4 SEC. 10. REGULATIONS. 

5 The Secretary, in consultation with the Secretary of 

6 the Department of Homeland Security, shall issue any 

7 regulations necessary to carry out the program for rein8 surance coverage under this Act. 

9 SEC. 11. TERMINATION. 

10 (a) IN GENERAL.—Except as provided in subsection 

11 (b), the Secretary may not provide any reinsurance cov12 erage under this Act covering any period after the expira13 tion of the 20-year period beginning on the date of the 

14 enactment of this Act. 

15 (b) EXTENSION.—If upon the expiration of the period 

16 under subsection (a) the Secretary, in consultation with 

17 the Commission, determines that continuation of the pro18 gram for reinsurance coverage under this Act is necessary 

19 or appropriate to carry out the purpose of this Act under 

20 section 4(b) because of insufficient growth of capacity in 

21 the private homeowners’ insurance market, the Secretary 

22 shall continue to provide reinsurance coverage under this 

23 Act until the expiration of the 5-year period beginning 

24 upon the expiration of the period under subsection (a). 


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1 (c) REPEAL.—Effective upon the date that reinsur2 ance coverage under this Act is no longer available or in 

3 force pursuant to subsection (a) or (b), this Act (except 

4 for this section) is repealed. 

5 (d) DEFICIT REDUCTION.—The Secretary shall cover 

6 into the General Fund of the Treasury any amounts re7 maining in the Fund under section 9 upon the repeal of 

8 this Act. 

9 SEC. 12. ANNUAL STUDY CONCERNING BENEFITS OF THE 

10 ACT. 

11 (a) IN GENERAL.—The Secretary shall, on an annual 

12 basis, conduct a study and submit to the Congress a report 

13 that— 

14 (1) analyzes the cost and availability of home15 owners’ insurance for losses resulting from cata16 strophic natural disasters covered by the reinsurance 

17 program under this Act; 

18 (2) describes the efforts of the participating 

19 States in— 

20 (A) enacting preparedness, prevention, 

21 mitigation, recovery, and rebuilding standards; 

22 and 

23 (B) educating the public on the risks asso24 ciated with natural catastrophe; and 


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1 (3) makes recommendations regarding ways to 

2 improve the program under this Act and its adminis3 tration. 

4 (b) CONTENTS.—Each annual study under this sec5 tion shall also determine and identify, on an aggregate 

6 basis— 

7 (1) for each State or region, the capacity of the 

8 private homeowners’ insurance market with respect 

9 to coverage for losses from catastrophic natural dis10 asters; 

11 (2) for each State or region, the percentage of 

12 homeowners who have such coverage, the catas13 trophes covered, and the average cost of such cov14 erage; and 

15 (3) for each State or region, the effects this Act 

16 is having on the availability and affordability of such 

17 insurance. 

18 (c) TIMING.—Each annual report under this section 

19 shall be submitted not later than March 30 of the year 

20 after the year for which the study was conducted. 

21 (d) COMMENCEMENT OF REPORTING REQUIRE22 MENT.—The Secretary shall first submit an annual report 

23 under this section not later than 2 years after the date 

24 of the enactment of this Act. 


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1 SEC. 13. GAO STUDY OF THE NATIONAL FLOOD INSURANCE 

2 PROGRAM AND HURRICANE-RELATED 

3 FLOODING. 

4 (a) IN GENERAL.—In light of the flooding associated 

5 with Hurricane Katrina, the Comptroller General of the 

6 United States shall conduct a study of the availability and 

7 adequacy of flood insurance coverage for losses to resi8 dences and other properties caused by hurricane-related 

9 flooding. 

10 (b) CONTENTS.—The study under this section shall 

11 determine and analyze— 

12 (1) the frequency and severity of hurricane-re13 lated flooding during the last 20 years in comparison 

14 with flooding that is not hurricane-related; 

15 (2) the differences between the risks of flood-re16 lated losses to properties located within the 100-year 

17 floodplain and those located outside of such flood18 plain; 

19 (3) the extent to which insurance coverage re20 ferred to in subsection (a) is available for properties 

21 not located within the 100-year floodplain; 

22 (4) the advantages and disadvantages of mak23 ing such coverage for such properties available under 

24 the national flood insurance program; 

25 (5) appropriate methods for establishing pre26 miums for insurance coverage under such program 


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1 for such properties that, based on accepted actuarial 

2 and rate making principles, cover the full costs of 

3 providing such coverage; 

4 (6) appropriate eligibility criteria for making 

5 flood insurance coverage under such program avail6 able for properties that are not located within the 

7 100-year floodplain or within a community partici8 pating in the national flood insurance program; 

9 (7) the appropriateness of the existing 

10 deductibles for all properties eligible for insurance 

11 coverage under the national flood insurance pro12 gram, including the standard and variable 

13 deductibles for pre-FIRM and post-FIRM prop14 erties, and whether a broader range of deductibles 

15 should be established; 

16 (8) income levels of policyholders of insurance 

17 made available under the national flood insurance 

18 program whose properties are pre-FIRM subsidized 

19 properties; 

20 (9) how the national flood program is marketed, 

21 if changes can be made so that more people are 

22 aware of flood coverage, and how take-up rates may 

23 be improved; 

24 (10) the number of homes that are not primary 

25 residences that are insured under the national flood 


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1 insurance program and are pre-FIRM subsidized 

2 properties; and 

3 (11) suggestions and means on how the pro4 gram under this Act can better meet its stated goals 

5 as well as the feasibility of expanding the national 

6 flood insurance program to cover the perils covered 

7 by this Act. 

8 (c) CONSULTATION WITH FEMA.—In conducting 

9 the study under this section, the Comptroller General shall 

10 consult with the Administrator of the Federal Emergency 

11 Management Agency. 

12 (d) REPORT.—The Comptroller General shall com13 plete the study under this section and submit a report to 

14 the Congress regarding the findings of the study not later 

15 than 5 months after the date of the enactment of this Act. 

16 SEC. 14. DEFINITIONS. 

17 For purposes of this Act, the following definitions 

18 shall apply: 

19 (1) COMMISSION.—The term ‘‘Commission’’ 

20 means the National Commission on Catastrophe 

21 Preparation and Protection established under section 

22 3. 

23 (2) COVERED PERILS.—The term ‘‘covered per24 ils’’ means the natural disaster perils under section 

25 6. 


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1 (3) COVERED PURCHASER.—The term ‘‘covered 

2 purchaser’’ means an eligible State-operated insur3 ance or reinsurance program that purchases reinsur4 ance coverage made available under a contract under 

5 section 7. 

6 (4) DISASTER AREA.—The term ‘‘disaster area’’ 

7 means a geographical area, with respect to which— 

8 (A) a covered peril specified in section 6 

9 has occurred; and 

10 (B) a declaration that a major disaster ex11 ists, as a result of the occurrence of such 

12 peril— 

13 (i) has been made by the President of 

14 the United States; and 

15 (ii) is in effect. 

16 (5) ELIGIBLE LOSSES.—The term ‘‘eligible 

17 losses’’ means losses in excess of the sustained and 

18 retained losses, as defined by the Secretary after 

19 consultation with the Commission. 

20 (6) ELIGIBLE STATE PROGRAM.—The term ‘‘eli21 gible State program’’ means— 

22 (A) a State program that, pursuant to sec23 tion 7(a), is eligible to purchase reinsurance 

24 coverage made available through contracts 

25 under section 7; or 


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1 (B) a multi-State program that is eligible 

2 to purchase such coverage pursuant to section 

3 7(c). 

4 (7) PRICE GOUGING.—The term ‘‘price 

5 gouging’’ means the providing of any consumer good 

6 or service by a supplier related to repair or restora7 tion of property damaged from a catastrophe for a 

8 price that the supplier knows or has reason to know 

9 is greater, by at least the percentage set forth in a 

10 State law or regulation prohibiting such act (not11 withstanding any real cost increase due to any at12 tendant business risk and other reasonable expenses 

13 that result from the major catastrophe involved), 

14 than the price charged by the supplier for such con15 sumer good or service immediately before the dis16 aster. 

17 (8) QUALIFIED LINES.—The term ‘‘qualified 

18 lines’’ means lines of insurance coverage for which 

19 losses are covered under section 5 by reinsurance 

20 coverage under this Act. 

21 (9) REINSURANCE COVERAGE.—The term ‘‘re22 insurance coverage under this Act’’ means coverage 

23 under contracts made available under section 7. 

24 (10) SECRETARY.—The term ‘‘Secretary’’ 

25 means the Secretary of the Treasury. 


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1 (11) STATE.—The term ‘‘State’’ means the 

2 States of the United States, the District of Colum3 bia, the Commonwealth of Puerto Rico, the Com4 monwealth of the Northern Mariana Islands, Guam, 

5 the Virgin Islands, American Samoa, and any other 

6 territory or possession of the United States. 

Æ 


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