I

104TH CONGRESS

2D SESSION H. R. 4115

To require the Director of the Federal Emergency Management Agency to

study the feasibility of a Residential Windstorm Insurance Program

designed to provide windstorm insurance to residential property owners

unable to obtain coverage in the private market and to require a study

by the Comptroller General of the United States, the Secretary of the

Treasury, and the Secretary of Commerce to evaluate the public policy

issues associated with conferring favorable Federal tax treatment to

insurance reserves set aside by private insurers for future catastrophic

natural disasters.

IN THE HOUSE OF REPRESENTATIVES

SEPTEMBER 19, 1996

Mr. FRAZER (for himself, Ms. MCKINNEY, Mr. OWENS, Mr. LEWIS of Georgia, Ms. WATERS, Mr. MORAN, Mr. RUSH, Mr. LAFALCE, Mrs. CLAYTON,

Mr. FALEOMAVAEGA, Ms. BROWN of Florida, Mr. GENE GREEN of Texas,

Mr. HINCHEY, Mr. BROWN of Ohio, Mr. HASTINGS of Florida, Mr. WATT

of North Carolina, Mr. SERRANO, Mr. RANGEL, Ms. KAPTUR, Mr. WARD,

Mr. MARKEY, Mr. STUPAK, Mr. WYNN, Mr. CUMMINGS, Mrs. MEEK of

Florida, Ms. JACKSON-LEE of Texas, and Mr. JEFFERSON) introduced

the following bill; which was referred to the Committee on Transportation

and Infrastructure, and in addition to the Committee on Banking and Financial Services, for a period to be subsequently determined by the

Speaker, in each case for consideration of such provisions as fall within

the jurisdiction of the committee concerned

A BILL

To require the Director of the Federal Emergency Management Agency to study the feasibility of a Residential

Windstorm Insurance Program designed to provide windstorm insurance to residential property owners unable

to obtain coverage in the private market and to require
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a study by the Comptroller General of the United States,

the Secretary of the Treasury, and the Secretary of

Commerce to evaluate the public policy issues associated

with conferring favorable Federal tax treatment to insurance reserves set aside by private insurers for future

catastrophic natural disasters.

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

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Residential Windstorm

5 Insurance Plan Act of 1996’’.

6 SEC. 2. CONGRESSIONAL FINDINGS.

7 Congress finds that—

8 (1) since the devastation of Hurricane Hugo on

9 September 17, 1989, insurance against windstorm

10 damage has been difficult to obtain at reasonable

11 premium rates for many residents of the United

12 States;

13 (2) an unusual number of other catastrophic

14 events, such as Hurricane Andrew in Florida, Hurri15 cane Iniki in Hawaii, the Northridge earthquake,

16 and more recently, Hurricanes Bertha and Fran in

17 Gulf and Atlantic Coast States, Puerto Rico, and

18 the Virgin Islands, have nearly collapsed the world19 wide reinsurance market, seriously limiting the abil20 ity of local insurance companies to meet existing de-
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1 mands for continued coverage, much less expand

2 their capacity for additional coverage;

3 (3) major hurricanes and earthquakes pose sub4 stantial long-term consequences for the country;

5 (4) the National Hurricane Center reports that

6 60 percent of the United States population live in

7 coastal States or regions subject to natural disas8 ters, such as hurricanes and earthquakes;

9 (5) private sector insurance protection against

10 property damages caused by the peril of wind is gen11 erally excluded under standard homeowners insur12 ance policies sold in 7 States along the Gulf and At13 lantic Coast States, the Virgin Islands, and Puerto

14 Rico, and property and casualty insurers are with15 drawing underwriting capacity from the market by

16 refusing to issue new policies or renew existing poli17 cies, or by increasing premiums to unaffordable lev18 els; and

19 (6) new and innovative programs are required

20 to provide a limited program of property insurance

21 protection from windstorm.

22 SEC. 3. RESIDENTIAL WINDSTORM INSURANCE PROGRAM.

23 (a) IN GENERAL.—The Director of the Federal

24 Emergency Management Agency (hereinafter in this Act

25 referred to as the ‘‘Director’’) shall study the advisability
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1 and feasibility of establishing a Residential Windstorm In2 surance Program designed to provide windstorm insurance

3 to residential property owners unable to obtain coverage

4 in the private market.

5 (b) PURPOSE OF PROGRAM.—The Residential Wind6 storm Insurance Program shall—

7 (1) amend the ‘‘Write Your Own’’ Program

8 under the National Flood Insurance Program to ex9 plicitly provide insurance protection against the

10 windstorm peril;

11 (2) allow residents in wind-exposed localities

12 across America and United States territories to pur13 chase federally subsidized insurance to supplement

14 standard homeowners insurance policies sold by pri15 vate insurers;

16 (3) provide windstorm insurance protection only

17 to residents in communities that have adopted and

18 enforced the land use and flood plain management

19 provisions of the National Flood Insurance Program;

20 (4) encourage the private insurance industry to

21 sell, service, and adjust Federal windstorm insurance

22 claims under their own corporate name under a

23 nonrisk bearing arrangement with the Federal In24 surance Administration; and
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1 (5) outline requirements under which the pri2 vate sector, including insurance companies, banks,

3 and other financial sector firms, could become in4 volved in the Residential Windstorm Insurance Pro5 gram.

6 (c) CONTENTS.—The Residential Windstorm Insur7 ance Program required under subsection (a) shall be de8 signed—

9 (1) to supplement Federal disaster relief and

10 emergency assistance provided pursuant to the Rob11 ert T. Stafford Disaster Relief and Emergency As12 sistance Act and other laws for damage and loss

13 caused by hurricanes;

14 (2) to make affordable insurance coverage avail15 able to protect against losses resulting from physical

16 damage to, or loss of, residential structures arising

17 from the wind peril;

18 (3) to provide such insurance coverage for resi19 dential structures through a program that pro20 vides—

21 (A) insurance coverage for wind damage

22 caused by hurricanes, but not for water damage

23 arising from any such wind peril;
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1 (B) insurance coverage at premium rates

2 affordable to homeowners in areas at risk for

3 such wind damage;

4 (C) appropriate building and structural re5 quirements and other wind damage mitigation

6 measures; and

7 (D) schedules of the amount of coverage

8 available for various residential structures;

9 (4) to provide incentives for private property

10 and casualty insurers to reenter markets from which

11 they have previously withdrawn; and

12 (5) to provide incentives for other private finan13 cial sector companies to enter the market for hazard

14 insurance.

15 (d) CONSIDERATIONS.—The Residential Windstorm

16 Insurance Program required under subsection (a) shall—

17 (1) provide for participation of the private in18 surance industry in carrying out the program;

19 (2) define—

20 (A) the areas in which such coverage is

21 made available by establishing requirements for

22 the eligibility or participation of communities;

23 and

24 (B) the types of residential properties for

25 which such coverage is made available;
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1 (3) establish premium rates for coverage that

2 are actuarially based on the risk of wind-caused

3 damage or subsidized premium rates that are less

4 than such actuarially based rates; and

5 (4) provide community-based mitigation and

6 other initiatives for participation in the Program.

7 (e) CONSULTATION.—In developing the program re8 quired under subsection (a), the Director shall consult

9 with—

10 (1) the heads of any Federal agencies author11 ized to provide disaster relief;

12 (2) the chief executive officers of the States and

13 territories of the United States, that suffered signifi14 cant losses caused by windstorms occurring after the

15 beginning of 1989; and

16 (3) insurance and reinsurance companies, insur17 ance trade associations, consumer advocacy groups,

18 and taxpayer groups in developing actuarial rates

19 and underwriting guidelines used to cover damages

20 to property caused by the hurricane peril.

21 (f) COMPLETION OF STUDY.—Not later than the last

22 day of the 180-day period beginning on the date of the

23 enactment of this Act, the Director shall submit to the

24 Committee on Transportation and Infrastructure and the

25 Committee on Banking and Financial Services of the
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1 House of Representatives and to the Committee on Envi2 ronment and Public Works and the Committee on Bank3 ing, Housing, and Urban Affairs of the Senate a study

4 containing—

5 (1) the written plan required under subsection

6 (a);

7 (2) a statement of the amount of disaster as8 sistance provided pursuant to the Robert T. Stafford

9 Disaster Relief and Emergency Assistance Act and

10 other Acts during each of fiscal years 1989 through

11 1996 for property damage caused by winds from

12 hurricanes, tornadoes, and other windstorms to resi13 dential properties, business properties, agricultural

14 properties, properties owned by private nonprofit or15 ganizations, and public infrastructure facilities and

16 properties owned by State and local governments;

17 (3) an estimate of the cost to the Federal Gov18 ernment of carrying out the Residential Windstorm

19 Insurance Program under the plan, by making cov20 erage available only for residential structures;

21 (4) an estimate of the cost to the Federal Gov22 ernment of carrying out the Residential Windstorm

23 Insurance Program under the plan, by making cov24 erage available for residential structures and for

25 public infrastructure and properties owned by State
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1 and local governments, other residential properties,

2 business properties, agricultural properties, and

3 properties owned by private nonprofit organizations;

4 (5) an estimate of the effects that implementing

5 the national windstorm insurance program would

6 have on the amount of disaster assistance provided

7 by the Federal Government;

8 (6) an estimate of the effects that implementing

9 the national windstorm insurance program would

10 have on the private insurance industry and the avail11 ability of residential and other property insurance

12 and insurance against windstorm damage;

13 (7) a description of any amendments to the

14 Robert T. Stafford Disaster Relief and Emergency

15 Assistance Act and other laws relating to disaster

16 assistance that would be necessary or appropriate in

17 the event of the implementation of the Residential

18 Windstorm Insurance Program; and

19 (8) any other information that the Director

20 considers appropriate.

21 SEC. 4. EARTHQUAKE INSURANCE STUDY.

22 (a) IN GENERAL.—The Director shall enter into an

23 arrangement with the National Academy of Sciences to

24 conduct a study on the advisability and feasibility of estab25 lishing a Federal earthquake insurance program modeled
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1 after the ‘‘Write Your Own’’ Program under the National

2 Flood Insurance Program.

3 (b) NATIONAL ACADEMY OF SCIENCES.—The study

4 described in subsection (c) shall be performed by a panel

5 of recognized experts appointed by the National Academy

6 of Sciences. The experts shall include representatives of

7 building contractors, real estate interests, consumer advo8 cacy groups, taxpayer groups, lending institutions, private

9 insurers and reinsurers, the model building code organiza10 tions, local government zoning and land use planning bod11 ies, and other experts deemed relevant by the National

12 Academy of Sciences.

13 (c) COMPLETION OF STUDY.—The results of the

14 study described in subsection (c), with any recommenda15 tions, shall be transmitted by the National Academy of

16 Sciences to the Director and Congress not later than 18

17 months after the date of the enactment of this Act.

18 SEC. 5. STUDY ON TAX TREATMENT OF CATASTROPHIC RE19 SERVES.

20 (a) JOINT STUDY.—The Comptroller General of the

21 United States, the Secretary of the Treasury, and the Sec22 retary of Commerce shall conduct a joint study to evaluate

23 the public policy issues associated with conferring favor24 able Federal tax treatment to multiyear insurance reserves
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1 set aside by private insurers for future catastrophic natu2 ral disasters.

3 (b) FACTORS TO BE STUDIED.—The study described

4 in subsection (a) shall evaluate the likelihood and mag5 nitude of the following public policy objectives:

6 (1) The increased financial capacity of private

7 insurers to respond to future natural disasters.

8 (2) The enhanced financial ability of private in9 surers to continue providing property coverages fol10 lowing catastrophic natural disasters.

11 (3) The overall benefit to the competitiveness of

12 United States business and private insurers in the

13 worldwide economy.

14 (4) The short- and long-term revenue impact on

15 the United States Treasury.

16 (c) LIMITATIONS.—The study of the favorable tax

17 treatment of catastrophic reserves shall be limited as fol18 lows:

19 (1) The study will not be limited to private in20 surer reserve funds but will also assess the ability of

21 the Federal and State governments to build such re22 serves.

23 (2) Any tax exemption given to catastrophic re24 serves will be done in a very limited and restricted
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1 manner in order to protect reserves against being

2 used for other than catastrophe costs.

3 (3) A portion of the buildup from the tax-ex4 empt reserves will be used to fund statewide mitiga5 tion efforts.

6 (d) CONSULTATION.—The Comptroller General, the

7 Secretary of the Treasury, and the Secretary of Commerce

8 shall consult with recognized experts in preparing the

9 study described in subsection (a). The experts shall in10 clude representatives from State insurance departments,

11 private insurers, insurance agents, economists, natural

12 disaster risk modeling experts, insurance consumer advo13 cacy groups, and other experts deemed relevant.

14 (e) REPORT TO CONGRESS.—The results of the study

15 described in subsection (a), including any recommenda16 tions, shall be transmitted to Congress not later than 180

17 days after the date of enactment of this Act.

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