I
106TH CONGRESS
1ST SESSION
H. R. 21
To establish a Federal program to provide reinsurance for State disaster
insurance programs.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 6, 1999
Mr. LAZIO (for himself, Mr. MCCOLLUM, Mr. BENTSEN, Mr. LAFALCE, Mr.
BAKER, Mr. WEYGAND, Mr. SHERMAN, Mr. LEACH, Mrs. ROUKEMA, Mr.
CAMPBELL, Mr. METCALF, Mrs. KELLY, Mr. WELDON of Florida, Mr.
ACKERMAN, Mr. MALONEY of Connecticut, Ms. HOOLEY of Oregon, Mr.
COOKSEY, Mr. DREIER, Mr. YOUNG of Alaska, Mr. FROST, Mr. FARR of
California, Mr. MCCRERY, Mrs. MEEK of Florida, Ms. CHRISTIAN-
GREEN, Mr. CANADY
of Florida, Mr. CALVERT, Mr. SHAW, Mr.
CUNNINGHAM, Mr. EWING, Mr. DAVIS of Florida, Mr. PRICE of North
Carolina, Mr. MCKEON, Mr. BILIRAKIS, Mr. BOYD, Mrs. FOWLER, Mr.
LOBIONDO, Mr. BLUNT, Mr. LAHOOD, Mrs. THURMAN, Mr. WEXLER,
Ms. ROS-LEHTINEN, Mr. KNOLLENBERG, Mr. MICA, Mr. DEUTSCH, Mr.
STEARNS, Mr. TRAFICANT, and Mr. PORTER) introduced the following
bill; which was referred to the Committee on Banking and Financial
Services
A BILL
To establish a Federal program to provide reinsurance for
State disaster insurance programs.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Homeowners’ Insur-
ance Availability Act of 1999’’.
SEC. 2. CONGRESSIONAL FINDINGS.
The Congress finds that—
(1) the rising costs resulting from natural dis-
asters have placed a strain on homeowners’ insur-
ance markets in many areas, jeopardizing the ability
of many consumers to adequately insure their homes
and possessions;
(2) the lack of sufficient insurance capacity
threatens to increase the number of uninsured home-
owners, which, in turn, increases the risk of mort-
gage defaults and the strain on the Nation’s banking
system;
(3) some States have intervened to ensure the
continued availability of homeowners’ insurance for
all residents;
(4) it is appropriate that efforts to improve in-
surance availability be designed and implemented at
the State level;
(5) while State insurance programs may be ade-
quate to cover losses from most natural disasters, a
small percentage of events are likely to exceed the fi-
nancial capacity of these programs and the local in-
surance markets;
(6) limited Federal reinsurance will improve the
effectiveness of State insurance programs and pri-
vate insurance markets and will increase the likeli-
hood that homeowners’ insurance claims will be fully
paid in the event of a large natural catastrophe;
(7) it is necessary to provide, on a temporary
basis, a Federal reinsurance program that will pro-
mote stability in the homeowners’ insurance market
in the short run and encourage the growth of rein-
surance capacity by the private and capital markets
as soon as practical;
(8) such Federal reinsurance program should
not remain in existence longer than necessary for
the private entities or the capital markets, or both,
to provide adequate reinsurance capacity to address
the current homeowners’ insurance market disloca-
tions caused by various disasters; and
(9) any Federal reinsurance program must be
founded upon sound actuarial principles and priced
in a manner that minimizes the potential impact on
the Treasury.
SEC. 3. PROGRAM AUTHORITY.
(a) IN GENERAL.—The Secretary of the Treasury
shall carry out a program under this Act to make reinsur-
ance coverage available through—
(1) contracts for reinsurance coverage under
section 6, which shall be made available for purchase
only by eligible State programs; and
(2) contracts for reinsurance coverage under
section 7, which shall be made available for purchase
by purchasers under section 7(a)(1) only through
auctions under section 7(a).
(b) PURPOSE.—The program shall be designed to
make reinsurance coverage under this Act available to im-
prove the availability of homeowners’ insurance for the
purpose of facilitating the pooling, and spreading the risk,
of catastrophic financial losses from natural disasters and
to improve the solvency of homeowners’ insurance mar-
kets.
(c) CONTRACT PRINCIPLES.—Under the program
under this Act, the Secretary shall offer reinsurance cov-
erage through contracts with covered purchasers, which
contracts—
(1) shall not displace or compete with the pri-
vate insurance or reinsurance markets or capital
markets;
(2) shall minimize the administrative costs of
the Federal Government;
(3) shall, in the case of any contract under sec-
tion 6 for eligible State programs, provide coverage
based solely on insured losses within the State of the
eligible State program purchasing the contract; and
(4) shall, in the case of any contract under sec-
tion 7 for purchase at auction, provide coverage
based solely on insured losses within the region es-
tablished pursuant to section 7(a) for which the auc-
tion is held.
SEC. 4. QUALIFIED LINES OF COVERAGE.
Each contract for reinsurance coverage made avail-
able under this Act shall provide insurance coverage
against residential property losses to homes (including
dwellings owned under condominium and cooperative own-
ership arrangements) and the contents of apartment
buildings.
SEC. 5. COVERED PERILS.
Each contract for reinsurance coverage made avail-
able under this Act shall cover losses that are—
(1) proximately caused by—
(A) earthquakes;
(B) perils ensuing from earthquakes, in-
cluding fire and tsunami;
(C) tropical cyclones having maximum sus-
tained winds of at least 74 miles per hour, in-
cluding hurricanes and typhoons; or
(D) volcanic eruptions; and
(2) in the case only of a contract under section
6, insured by the eligible State program purchasing
the contract.
The Secretary shall, by regulation, define the natural dis-
aster perils under paragraph (1).
SEC. 6. CONTRACTS FOR REINSURANCE COVERAGE FOR
ELIGIBLE STATE PROGRAMS.
(a) ELIGIBLE STATE PROGRAMS.—A program shall
be eligible to purchase a contract under this section for
reinsurance coverage under this Act only if the program
is a State-operated program that complies with the follow-
ing requirements:
(1) PROGRAM DESIGN.—The program shall be a
State-operated—
(A) insurance program that offers coverage
for homes (which may include dwellings owned
under condominium and cooperative ownership
arrangements) and the contents of apartments
to State residents because of a finding by the
State insurance commissioner or other State
entity authorized to make such determination
that such a program is necessary in order to
provide for the continued availability of such
residential coverage for all residents; or
(B) reinsurance program that is designed
to improve private insurance markets which
offer coverage for homes (which may include
dwellings owned under condominium and coop-
erative ownership arrangements) and the con-
tents of apartments because of a finding by the
State insurance commissioner or other State
entity authorized to make such determination
that such a program is necessary in order to
provide for the continued availability of such
residential coverage for all residents.
(2) TAX STATUS.—The program shall be struc-
tured and carried out in a manner so that the pro-
gram is exempt from all Federal taxation.
(3) COVERAGE.—The program shall cover only
a single peril.
(4) EARNINGS.—The program may not provide
for the redistribution of any part of any net profits
of the program to any insurer that participates in
the program.
(5) MITIGATION.—
(A) IN GENERAL.—The program shall in-
clude mitigation provisions that require that not
less than 10 percent of the net investment in-
come of the State insurance or reinsurance pro-
gram be used for programs to mitigate losses
from natural disasters for which the State in-
surance or reinsurance program was estab-
lished. For purposes of this paragraph, mitiga-
tion shall include methods to reduce losses of
life and property.
(B) EXCEPTION.—Notwithstanding sub-
paragraph (A), in the case of any State for
which the Secretary has determined, pursuant
to a request by the State insurance commis-
sioner, that the 10 percent requirement under
subparagraph (A) will jeopardize the actuarial
soundness of the State program, subparagraph
(A) shall be applied by substituting ‘‘5 percent’’
for ‘‘10 percent’’.
(6) REQUIREMENTS REGARDING COVERAGE.—
(A) IN GENERAL.—The program—
(i) may not involve cross-subsidization
between any separate property and cas-
ualty lines covered under the program;
(ii) shall include provisions that au-
thorize the State insurance commissioner
or other State entity authorized to make
such a determination to terminate the pro-
gram if the insurance commissioner or
other such entity determines that the pro-
gram is no longer necessary to ensure the
availability of homeowners’ insurance for
all State residents; and
(iii) shall provide that, for any insur-
ance coverage for homes (which may in-
clude dwellings owned under condominium
and cooperative ownership arrangements)
and the contents of apartments that is
made available under the State insurance
program and for any reinsurance coverage
for such insurance coverage made available
under the State reinsurance program, the
premium rates charged shall be amounts
that, at a minimum, are sufficient to cover
the full actuarial costs of such coverage,
based on consideration of the risks involved
and accepted actuarial and rate making
principles, anticipated administrative ex-
penses, and loss and loss-adjustment ex-
penses.
(B) APPLICABILITY.—This paragraph shall
apply to any program which, after January 1,
1999, commences offering insurance or reinsur-
ance coverage described in subparagraph (A) or
(B), respectively, of paragraph (1), or effective
2 years after the date of enactment for any ex-
isting State program described in section 8.
(7) OTHER QUALIFICATIONS.—
(A) IN GENERAL.—The program shall have
been certified (for the year for which the cov-
erage is in effect) by the Secretary as in compli-
ance with regulations that shall be issued under
this paragraph by the Secretary, in consultation
with the National Commission on Catastrophe
Risks and Insurance Loss Costs established
under section 10. The regulations shall estab-
lish criteria for State programs to qualify to
purchase reinsurance under this section, which
are in addition to the requirements under the
other paragraphs of this subsection.
(B) CONTENTS.—The regulations issued
under this paragraph shall include requirements
that—
(i) the State program have public
members on its board of directors or have
an advisory board with public members;
(ii) insurance coverage made available
through the State program not supplant
coverage that is otherwise reasonably avail-
able and affordable in the private insur-
ance market;
(iii) the State program provide ade-
quate insurance protection for the peril
covered, which shall include a range of
deductibles and premium costs that reflect
the applicable risk to eligible properties;
(iv) the insurance protection provided
by the State program is made available on
a nondiscriminatory basis to all qualifying
residents;
(v) the State, or the appropriate local
governments within the State, have cer-
tified that new construction insured by the
program complies with applicable building,
fire, and safety codes;
(vi) the State, or appropriate local
governments within the State, have in ef-
fect building, fire, and safety codes gen-
erally consistent with Federal Emergency
Management Agency guidelines designed to
reduce losses from the peril covered;
(vii) the State has taken actions to es-
tablish an insurance rate structure that
(1) PURCHASERS.—The auction program shall
provide for auctioning all contracts made available
under this section to private insurers and reinsurers,
State insurance and reinsurance programs, and
other interested entities.
(2) REGIONAL
AUCTIONS.—The auction pro-
gram shall provide for auctions on a regional basis.
The Secretary shall divide the States into not less
than 6 regions for the purpose of holding such re-
gional auctions, which shall include separate regions
for all or part of the State of California and all or
part of the State of Florida. Auctions for each re-
gion shall be conducted not less often than annually.
(3) RESERVE PRICE.—In auctioning a contract
under this section for reinsurance coverage, the Sec-
retary shall set a reserve price as the lowest base
price for that contract, based upon the recommenda-
tions of the Commission. The reserve price shall be
determined on the basis of the following components:
(A) RISK-BASED
PRICE.—A risk-based
price, which shall reflect the anticipated
annualized payout of the contract according to
the actuarial analysis and recommendations of
the Commission.