Homeowners Insurance Protection Act of 2009 - Instructs the Secretary of the Treasury to establish the National Commission on Catastrophe Preparation and Protection to advise the Secretary regarding estimated loss costs associated with contracts for reinsurance coverage.
Authorizes the Secretary to make homeowners protection coverage available through contracts for reinsurance coverage. Restricts purchase of such coverage to eligible state programs. Prescribes criteria for state eligibility.
Requires each contract for reinsurance coverage to provide insurance coverage against residential property losses to homes, including condominium and cooperative ownership, and the contents of apartment buildings. Cites covered perils.
Prescribes a minimum level of retained losses and maximum federal liability.
Authorizes any insurer who participates in an eligible state program to establish a Catastrophe Capital Reserve Fund to hold funds on the Secretary's behalf to offset reinsurance claims.
Establishes the Consumer Hurricane, Earthquake, Loss Protection (HELP) Fund to: (1) make payments to covered purchasers under contracts for reinsurance coverage for eligible losses; and (2) pay for Commission operating costs and reinsurance program administrative expenses.
Directs the Comptroller General to study the national flood insurance program and hurricane-related flooding.
[Congressional Bills 111th Congress]
[From the U.S. Government Printing Office]
[H.R. 83 Introduced in House (IH)]
111th CONGRESS
1st Session
H. R. 83
To establish a program to provide reinsurance 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, and to better
assist in the financial recovery from such catastrophes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
January 6, 2009
Ms. Ginny Brown-Waite of Florida introduced the following bill; which
was referred to the Committee on Financial Services
_______________________________________________________________________
A BILL
To establish a program to provide reinsurance 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, and to better
assist in the financial recovery from such catastrophes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Homeowners
Insurance Protection Act of 2009''.
(b) Table of Contents.--The table of contents for 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. Treatment of insured losses and maximum Federal liability.
Sec. 9. Catastrophe capital reserve funds.
Sec. 10. Consumer Hurricane, Earthquake, Loss Protection (HELP) Fund.
Sec. 11. Annual study concerning benefits of reinsurance program.
Sec. 12. Definitions.
Sec. 13. Regulations.
Sec. 14. Termination.
Sec. 15. GAO study of the National Flood Insurance Program and
hurricane-related flooding.
SEC. 2. CONGRESSIONAL FINDINGS.
The Congress finds that--
(1) the United States needs to take actions to be better
prepared for and better protected from catastrophes;
(2) the hurricane seasons of 2004 and 2005 are startling
reminders of both the human and economic devastation that
hurricanes, flooding, and other natural disasters can cause;
(3) if a hurricane similar to the deadly 1900 Galveston
hurricane occurred again it could cause over $36,000,000,000 in
loss;
(4) if the 1904 San Francisco earthquake occurred again it
could cause over $400,000,000,000 in loss;
(5) if a Category 5 hurricane were to hit Miami it could
cause over $50,000,000,000 in loss and devastate the insurance
industry in the United States;
(6) if the 1938 ``Long Island Express'' were to occur again
it could cause over $30,000,000,000 in damage and if a
hurricane that strong were to directly hit Manhattan it could
cause over $150,000,000,000 in damage and cause irreparable
harm to our Nation's economy;
(7) a more comprehensive and integrated approach to dealing
with catastrophes is needed;
(8) using history as a guide, natural catastrophes will
inevitably place a tremendous strain on homeowners' insurance
markets in many areas, will raise costs for consumers, and will
jeopardize the ability of many consumers to adequately insure
their homes and possessions;
(9) the lack of sufficient insurance capacity and the
inability of private insurers to build enough capital, in a
short amount of time, threatens to increase the number of
uninsured homeowners, which, in turn, increases the risk of
mortgage defaults and the strain on the Nation's banking
system;
(10) some States have intervened to ensure the continued
availability and affordability of homeowners' insurance for all
residents;
(11) it is appropriate that efforts to improve insurance
availability be designed and implemented at the State level;
(12) while State insurance programs may be adequate to
cover losses from most natural disasters, a small percentage of
events are likely to exceed the financial capacity of these
programs and the local insurance markets;
(13) making available limited Federal reinsurance would
improve the effectiveness of State insurance programs and
private insurance markets and would increase the likelihood
that homeowners' insurance claims will be fully paid in the
event of a large natural catastrophe and that routine claims
that occur after a mega-catastrophe will also continue to be
paid;
(14) it is necessary to provide a Federal reinsurance
program on a temporary basis that will provide more protection
at an overall lower cost and that will promote stability in the
homeowners' insurance market in the short term and encourage
growth of reinsurance capacity by the private and capital
markets as soon as practical;
(15) it is the proper role of the Federal Government to
prepare for and protect its citizens from catastrophes and to
facilitate consumer protection, victim assistance, and
recovery, including financial recovery;
(16) any Federal reinsurance program must be founded upon
sound actuarial principles and priced in a manner that
minimizes the potential impact on the Treasury of the United
States, encourages the creation of State funds and maximizes
the buying potential of these State funds, encourages and
promotes prevention and mitigation, recovery and rebuilding,
and consumer education, and emphasizes continuous analysis and
improvement; and
(17) such a 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 homeowners' insurance market.
SEC. 3. NATIONAL COMMISSION ON CATASTROPHE PREPARATION AND PROTECTION.
(a) Establishment.--The Secretary of the Treasury shall establish a
commission to be known as the National Commission on Catastrophe
Preparation and Protection.
(b) Duties.--The Commission shall meet for the purpose of advising
the Secretary regarding the estimated loss costs associated with the
contracts for reinsurance coverage available under this Act and
carrying out the functions specified in this Act, including--
(1) the development and implementation of public education
concerning the risks posed by natural catastrophes;
(2) the development and implementation of prevention,
mitigation, recovery, and rebuilding standards that better
prepare and protect the United States from catastrophes;
(3) the establishment of requirements under section 7(e) to
ensure that cost savings resulting from this Act inure to the
benefit of consumers; and
(4) conducting continuous analysis of the effectiveness of
this Act and recommending improvements to the Congress so that
the costs of providing catastrophe protection are decreased and
so that the United States is better prepared.
(c) Members.--
(1) Appointment and qualification.--The Commission shall
consist of 9 members, as follows:
(A) Homeland security member.--The Secretary of
Homeland Security or the Secretary's designee.
(B) Appointed members.--8 members appointed by the
Secretary, who shall consist of--
(i) one individual who is an actuary;
(ii) one individual who is employed in
engineering;
(iii) one individual representing the
scientific community;
(iv) one individual representing property
and casualty insurers;
(v) one individual representing reinsurers;
(vi) one individual who is a member or
former member of the National Association of
Insurance Commissioners; and
(vii) two individuals who are consumers.
(2) Prevention of conflicts of interest.--Members shall
have no personal or financial interest at stake in the
deliberations of the Commission.
(d) Treatment of Non-Federal Members.--Each member of the
Commission who is not otherwise employed by the Federal Government
shall be considered a special Government employee for purposes of
sections 202 and 208 of title 18, United States Code.
(e) Experts and Consultants.--The Commission may procure temporary
and intermittent services from individuals or groups recognized as
experts in the fields of meteorology, seismology, vulcanology, geology,
structural engineering, wind engineering, and hydrology, and other
fields, under section 3109(b) of title 5, United States Code, but at a
rate not in excess of the daily equivalent of the annual rate of basic
pay payable for level V of the Executive Schedule, for each day during
which the individual procured is performing such services for the
Commission. The Commission may also procure, and the Congress
encourages the Commission to procure, experts from universities,
research centers, foundations, and other appropriate organizations who
could study, research, and develop methods and mechanisms that could be
utilized to strengthen structures to better withstand the perils
covered by this Act.
(f) Compensation.--Each member of the Commission who is not an
officer or employee of the Federal Government shall be compensated at a
rate of basic pay payable for level V of the Executive Schedule, for
each day (including travel time) during which such member is engaged in
the performance of the duties of the Commission. All members of the
Commission who are officers or employees of the United States shall
serve without compensation in addition to that received for their
services as officers or employees of the United States.
(g) Obtaining Data.--The Commission and the Secretary may solicit
loss exposure data and such other information either deems necessary to
carry out its responsibilities from governmental agencies and bodies
and organizations that act as statistical agents for the insurance
industry. The Commission and the Secretary shall take such actions as
are necessary to ensure that information that either deems is
confidential or proprietary is disclosed only to authorized individuals
working for the Commission or the Secretary. No company which refuses
to provide information requested by the Commission or the Secretary may
participate in the program for reinsurance coverage authorized under
this Act, nor may any State insurance or reinsurance program
participate if any governmental agency within that State has refused to
provide information requested by the Commission or the Secretary.
(h) Funding.--
(1) Authorization of appropriations.--There is authorized
to be appropriated--
(A) $10,000,000 for fiscal year 2009 for the
initial expenses in establishing the Commission and the
initial activities of the Commission that cannot timely
be covered by amounts obtained pursuant to section
7(b)(6)(B)(iii), as determined by the Secretary;
(B) such additional sums as may be necessary to
carry out subsequent activities of the Commission;
(C) $10,000,000 for fiscal year 2009 for the
initial expenses of the Secretary in carrying out the
program authorized under section 4; and
(D) such additional sums as may be necessary to
carry out subsequent activities of the Secretary under
this Act.
(2) Offset.--The Secretary shall provide, to the maximum
extent practicable, that an amount equal to any amount
appropriated under paragraph (1) is obtained from purchasers of
reinsurance coverage under this Act and deposited in the Fund
established under section 10. Such amounts shall be obtained by
inclusion of a provision for the Secretary's and the
Commission's expenses incorporated into the pricing of the
contracts for such reinsurance coverage, pursuant to section
7(b)(6)(B)(iii).
(i) Termination.--The Commission shall terminate upon the effective
date of the repeal under section 14(c).
SEC. 4. PROGRAM AUTHORITY.
(a) In General.--The Secretary of the Treasury, in consultation
with the Secretary of Homeland Security, shall carry out a program
under this Act to improve the availability and affordability of
homeowners protection coverage by making available for purchase, only
by eligible State programs, contracts for reinsurance coverage under
section 7.
(b) Purpose.--The program shall be designed to make reinsurance
coverage under this Act available--
(1) to improve the availability and affordability of
homeowners' insurance for the purpose of facilitating the
pooling, and spreading the risk, of catastrophic financial
losses from natural catastrophes;
(2) to improve the solvency and capacity of homeowners'
insurance markets;
(3) to encourage the development and implementation of
mitigation, prevention, recovery, and rebuilding standards; and
(4) to recommend methods to continuously improve the way
the United States reacts and responds to catastrophes,
including improvements to the HELP Fund established under
section 10.
(c) Contract Principles.--Under the program under this Act, the
Secretary shall offer reinsurance coverage through contracts with
covered purchasers, which contracts--
(1) shall not displace or compete with the private
insurance or reinsurance markets or the capital market;
(2) shall minimize the administrative costs of the Federal
Government; and
(3) shall provide coverage based solely on insured losses
within the State for the eligible State program purchasing the
contract.
SEC. 5. QUALIFIED LINES OF COVERAGE.
Each contract for reinsurance coverage made available under this
Act shall provide insurance coverage against residential property
losses to homes (including dwellings owned under condominium and
cooperative ownership arrangements) and the contents of apartment
buildings.
SEC. 6. COVERED PERILS.
Each contract for reinsurance coverage made available under this
Act shall cover losses insured or reinsured by the eligible State
program purchasing the contract that are proximately caused by--
(1) earthquakes;
(2) perils ensuing from earthquakes, including fire and
tsunamis;
(3) tropical cyclones having maximum sustained winds of at
least 74 miles per hour, including hurricanes and typhoons;
(4) tornadoes;
(5) volcanic eruptions;
(6) catastrophic winter storms; and
(7) any other natural catastrophe (not including any flood)
insured or reinsured under the eligible State program for which
reinsurance coverage under section 7 is provided.
The Secretary shall, by regulation, define the natural catastrophe
perils under this section.
SEC. 7. 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 State entity authorized to make such
determinations certifies to the Secretary that the program complies
with the following requirements:
(1) Program design.--The program shall be a State-
operated--
(A) insurance program that--
(i) offers coverage for homes (which may
include dwellings owned under condominium and
cooperative ownership arrangements) and the
contents of apartments to State residents; and
(ii) is authorized by State law; or
(B) reinsurance program that is designed to improve
private insurance markets that offer coverage for homes
(which may include dwellings owned under condominium
and cooperative ownership arrangements) and the
contents of apartments because of a finding by the
State insurance commissioner or other State entity
authorized to make such a determination that such
program is necessary in order to provide for the
continued availability of such residential coverage for
all residents.
(2) Operation.--The program shall meet the following
requirements:
(A) A majority of the members of the governing body
of the program shall be public officials.
(B) The State shall have a financial interest in
the program, which shall not include a program
authorized by State law or regulation that requires
insurers to pool resources to provide property
insurance coverage for covered perils.
(C) If the State has at any time appropriated
amounts from the State fund for the State program for
any purpose other than payments under the program, the
State shall have repaid such amounts to the State fund,
together with interest on such amounts.
(3) Tax status.--The program shall be structured and
carried out in a manner so that the program is exempt from all
Federal taxation.
(4) Coverage.--The program shall cover all perils specified
in section 6.
(5) Earnings.--The program may not provide for, nor shall
have ever made, any redistribution of any part of any net
profits of the program to any insurer that participates in the
program.
(6) Prevention and mitigation.--The program shall include
prevention and mitigation provisions that require that not less
$10,000,000 and not more than 35 percent of the net investment
income of the State insurance or reinsurance program be used
for programs to mitigate losses from natural catastrophes for
which the State insurance or reinsurance program was
established. For purposes of this paragraph, prevention and
mitigation shall include methods to reduce losses of life and
property, including appropriate measures to adequately
reflect--
(A) encouragement of awareness about the risk
factors and what can be done to eliminate or reduce
them;
(B) location of the risk, by giving careful
consideration of the natural risks for the location of
the property before allowing building and
considerations if structures are allowed; and
(C) construction relative to the risk and hazards,
which act upon--
(i) State mandated building codes
appropriate for the risk;
(ii) adequate enforcement of the risk-
appropriate building codes;
(iii) building materials that prevent or
significantly lessen potential damage from the
natural catastrophes;
(iv) building methods that prevent or
significantly lessen potential damage from the
natural catastrophes; and
(v) a focus on prevention and mitigation
for any substantially damaged structure, with
an emphasis on how structures can be
retrofitted so as to make them building code
compliant.
(7) Requirements regarding coverage.--
(A) In general.--The program--
(i) may not, except for charges or
assessments related to post-event financing or
bonding, involve cross-subsidization between
any separate property and casualty lines
covered under the program unless the
elimination of such activity in an existing
program would negatively impact the eligibility
of the program to purchase a contract for
reinsurance coverage under this Act pursuant to
paragraph (3);
(ii) shall include provisions that
authorize the State insurance commissioner or
other State entity authorized to make such a
determination to terminate the program if the
insurance commissioner or other such entity
determines that the program is no longer
necessary to ensure the availability of
homeowners' insurance for all residents of the
State; and
(iii) shall provide that, for any insurance
coverage for homes (which may include 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 expenses, and loss
and loss-adjustment expenses.
(B) Applicability.--This paragraph shall apply
after the expiration of the 2-year period beginning on
the date of the enactment of this Act.
(8) Prohibition of competition with private market.--Any
insurance or reinsurance coverage, as applicable, made
available through the State program shall not supplant coverage
that is otherwise reasonably available and affordable in the
private market.
(9) Other qualifications.--
(A) In general.--The State program shall (for the
year for which the coverage is in effect) comply with
regulations that shall be issued under this paragraph
by the Secretary, in consultation with the Commission.
The regulations shall establish 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 shall have public
members on its board of directors or have an
advisory board with public members;
(ii) the State program provide adequate
insurance or reinsurance protection, as
applicable, for the perils covered, which shall
include a range of deductibles and premium
costs that reflect the applicable risks to
eligible properties;
(iii) insurance or reinsurance coverage, as
applicable, provided by the State program is
made available on a nondiscriminatory basis to
all qualifying residents;
(iv) any new construction, substantial
rehabilitation, and renovation insured or
reinsured by the program complies with
applicable State or local government building,
fire, and safety codes;
(v) the State, or appropriate local
governments within the State, have in effect
and enforce nationally recognized model
building, fire, and safety codes and consensus-
based standards that offer risk responsive
resistance that is substantially equivalent or
greater than the resistance to earthquakes or
high winds;
(vi) the State has taken actions to
establish an insurance rate structure that
takes into account measures to mitigate
insurance losses;
(vii) there are in effect, in such State,
laws or regulations sufficient to prohibit
price gouging, during the term of reinsurance
coverage under this Act for the State program
in any disaster area located within the State;
and
(viii) the State program complies with such
other requirements that the Secretary considers
necessary to carry out the purposes of this
Act.
(b) Terms of Contracts.--Each contract under this section for
reinsurance coverage under this Act shall be subject to the following
terms and conditions:
(1) Maturity.--The term of the contract shall not exceed 1
year or such other term as the Secretary may determine.
(2) Payment condition.--The contract shall authorize claims
payments only for eligible losses to the eligible State program
purchasing the coverage.
(3) Retained losses requirement.--For each event of a
covered peril, the contract shall make a payment for the event
only if the total amount of insurance claims for losses, which
are covered by qualified lines, occur to properties located
within the State covered by the contract, and that result from
insured losses (as defined in section 12) for the State
program, exceeds the amount of retained losses provided under
the contract (pursuant to section 8(a)) purchased by the
eligible State program.
(4) Multiple events.--The contract shall cover any eligible
losses from one or more covered events that may occur during
the term of the contract and shall provide that if multiple
events occur, the retained losses requirement under paragraph
(3) shall apply on a calendar year basis, in the aggregate and
not separately to each individual event.
(5) Timing of eligible losses.--Eligible losses under the
contract shall include only insurance claims for property
covered by qualified lines that are reported to the eligible
State program within the 3-year period beginning upon the event
or events for which payment under the contract is provided.
(6) Pricing.--
(A) Determination.--The price of reinsurance
coverage under the contract shall be an amount
established by the Secretary as follows:
(i) Recommendations.--The Secretary shall
take into consideration the recommendations of
the Commission in establishing the price, but
the price may not be less than the amount
recommended by the Commission.
(ii) Fairness to taxpayers.--The price
shall be established at a level that is
designed to reflect the risks and costs being
borne under each reinsurance contract issued
under this Act and that takes into
consideration empirical models of natural
disasters and the capacity of private markets
to absorb insured losses from natural
disasters.
(iii) Self-sufficiency.--The rates for
reinsurance coverage shall be established at a
level that annually produces expected premiums
that shall be sufficient to pay the expected
annualized cost of all claims, loss adjustment
expenses, and all administrative costs of
reinsurance coverage offered under this
section.
(B) Components.--The price shall consist of the
following components:
(i) 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.
(ii) Risk load.--A risk load in an amount
that is not less than the risk-based price
under clause (i). In establishing risk loads
under this clause, the Secretary shall take
into consideration comparable private risk
loads.
(iii) Administrative costs.--A sum
sufficient to provide for the operation of the
Commission and the administrative expenses
incurred by the Secretary in carrying out this
Act.
(7) Information.--The contract shall contain a condition
providing that the Commission may require the State program
that is covered under the contract to submit to the Commission
all information on the State program relevant to the duties of
the Commission, as determined by the Secretary.
(8) Additional contract option.--The contract shall provide
that the purchaser of the contract may, during the term of such
original contract, purchase additional contracts from among
those offered by the Secretary at the beginning of the term,
subject to the limitations under section 8, at the prices at
which such contracts were offered at the beginning of the term,
prorated based upon the remaining term as determined by the
Secretary. Such additional contracts shall provide coverage
beginning on a date 15 days after the date of purchase but
shall not provide coverage for losses for an event that has
already occurred.
(9) Others.--The contract shall contain such other terms as
the Secretary considers necessary to carry out this Act and to
ensure the long-term financial integrity of the program under
this Act.
(c) Private Sector Right To Participate.--
(1) Establishment of competitive procedure.--The Secretary
shall establish, by regulation, a competitive procedure under
this subsection that provides qualified entities an
opportunity, on a basis consistent with the contract cycle
established under this Act by the Secretary, to offer to
provide, in lieu of reinsurance coverage under this section,
reinsurance coverage that is substantially similar to coverage
otherwise made available under this section.
(2) Competitive procedure.--Under the procedure established
under this subsection--
(A) the Secretary shall establish criteria for
private insurers, reinsurers, and capital market
companies, and consortia of such entities to be treated
as qualified entities for purposes of this subsection,
which criteria shall require such an entity to have at
all times capital sufficient to satisfy the terms of
the reinsurance contracts and shall include such other
industry and credit rating standards as the Secretary
considers appropriate;
(B) not less than 30 days before the beginning of
each contract cycle during which any reinsurance
coverage under this section is to be made available,
the Secretary may request proposals and shall publish
in the Federal Register the rates and terms for
contracts for reinsurance coverage under this section
that are to be made available during such contract
cycle;
(C) the Secretary shall provide qualified entities
a period of not less than 10 days (which shall
terminate not less than 20 days before the beginning of
the contract cycle) to submit to the Secretary a
written expression of interest in providing reinsurance
coverage in lieu of the coverage otherwise to be made
available under this section;
(D) the Secretary shall provide any qualified
entity submitting an expression of interest during the
period referred to in subparagraph (C) a period of not
less than 20 days (which shall terminate before the
beginning of the contract cycle) to submit to the
Secretary an offer to provide, in lieu of the
reinsurance coverage otherwise to be made available
under this section, coverage that is substantially
similar to such coverage;
(E) if the Secretary determines that an offer
submitted during the period referred to in subparagraph
(D) is a bona fide offer to provide reinsurance
coverage during the contract cycle at rates and terms
that are substantially similar to the rates and terms
for reinsurance coverage otherwise to be provided under
this section by the Secretary, the Secretary shall
accept the offer (if still outstanding) and,
notwithstanding any other provision of this Act,
provide for such entity to make reinsurance coverage
available in accordance with the offer; and
(F) if the Secretary accepts an offer pursuant to
subparagraph (E) to make reinsurance coverage
available, notwithstanding any other provision of this
Act, the Secretary shall reduce, to an equivalent
extent, the amount of reinsurance coverage available
under this section during the contract cycle to which
the offer relates, unless and until the Secretary
determines that the entity is not complying with the
terms of the accepted offer.
(d) Participation by Multi-State Catastrophe Fund Programs.--
Nothing in this Act shall prohibit the creation of multi-State
catastrophe insurance or reinsurance programs, or the participation by
such programs in the program established pursuant to section 4. The
Secretary shall, by regulation, apply the provisions of this Act to
multi-State catastrophe insurance and reinsurance programs.
(e) Requirement for Insurers To Pass Through Savings to
Consumers.--Notwithstanding any other provision of this Act, a State
program shall not be eligible to purchase a contract for reinsurance
coverage made available under this Act unless such State has in effect
such laws, regulations, or other requirements, as the Secretary shall
by regulation require, that--
(1) to the extent that reinsurance coverage made available
under the program under this Act results in any cost savings in
providing insurance coverage for risks in such State, such cost
savings be reflected in premium rates charged to consumers for
such coverage; and
(2) the State take such actions as the Secretary considers
appropriate to ensure that the requirement under paragraph (1)
is carried out and enforced.
SEC. 8. TREATMENT OF INSURED LOSSES AND MAXIMUM FEDERAL LIABILITY.
(a) Available Levels of Retained Losses.--In making reinsurance
coverage available under this Act, the Secretary shall make available
for purchase contracts for such coverage that require the sustainment
of retained losses from covered perils (as required under section
7(b)(3) for payment of eligible losses) in various amounts, as the
Secretary, in consultation with the Commission, determines appropriate
and subject to the requirements under subsection (b).
(b) Minimum Level of Retained Losses.--
(1) Amount.--Subject to paragraph (2) and notwithstanding
any other provision of this Act, a contract for reinsurance
coverage under section 7 for an eligible State program that
offers insurance or reinsurance coverage described in
subparagraph (A) or (B), respectively, of section 7(a)(1) may
not be made available or sold unless the contract requires that
the State program sustain an amount of retained losses from
covered perils in the following amount:
(A) In general.--The State program shall sustain an
amount of retained losses of not less than the greater
of--
(i) the claims-paying capacity of the
eligible State program, as determined by the
Secretary; and
(ii) an amount, determined by the Secretary
in consultation with the Commission, that is
the amount equal to the eligible losses
projected to be incurred once every 200 years
on an annual basis from covered perils.
(B) Transition rule for new programs.--
(i) 200-year event.--The Secretary may
provide that, in the case of an eligible State
program that, after the date of the enactment
of this Act, commences offering insurance or
reinsurance coverage, during the 7-year period
beginning on the date that reinsurance coverage
under section 7 is first made available, the
minimum level of retained losses applicable
under this paragraph shall be the amount
determined for the State under subparagraph
(A)(i), except that such minimum level shall be
adjusted annually as provided in clause (ii) of
this subparagraph.
(ii) Annual adjustment.--Each annual
adjustment under this clause shall increase the
minimum level of retained losses applicable
under this subparagraph to an eligible State
program described in clause (i) in a manner
such that--
(I) during the course of such 7-
year period, the applicable minimum
level of retained losses approaches the
minimum level that, under subparagraph
(A)(ii), will apply to the eligible
State program upon the expiration of
such period; and
(II) each such annual increase is a
substantially similar amount, to the
extent practicable.
(C) Reduction because of reduced claims-paying
capacity.--
(i) Authority.--Notwithstanding
subparagraphs (A), (B), and (C) or the terms
contained in a contract for reinsurance
pursuant to such subparagraphs, if the
Secretary determines that the claims-paying
capacity of an eligible State program has been
reduced because of payment for losses due to an
event, the Secretary may reduce the minimum
level of retained losses.
(ii) Term of reduction.--The Secretary may
extend the 5-year period for not more than 5
additional one-year periods if the Secretary
determines that losses incurred by the State
program as a result of covered perils create
excessive hardship on the State program. The
Secretary shall consult with the appropriate
officials of the State program regarding the
required schedule and any potential one-year
extensions.
(D) Claims-paying capacity.--For purposes of this
paragraph, the claims-paying capacity of a State-
operated insurance or reinsurance program under section
7(a)(1) shall be determined by the Secretary, in
consultation with the Commission, taking into
consideration the claims-paying capacity as determined
by the State program, retained losses to private
insurers in the State in an amount assigned by the
State insurance commissioner, the cash surplus of the
program, and the lines of credit, reinsurance, and
other financing mechanisms of the program established
by law.
(2) Initial adjustment based on private market.--The
Secretary may, before making contracts for reinsurance coverage
under this Act initially available under section 7, raise the
minimum level of retained losses from the amount required under
paragraph (1) for an eligible State program to ensure, as
determined by the Secretary, that such contracts comply with
the principle under section 4(c)(1).
(c) 90 Percent Coverage of Insured Losses in Excess of Retained
Losses.--Each contract for reinsurance coverage under this Act for a
covered purchaser shall provide that the amount paid out under the
contract shall, subject to subsection (d), be equal to 90 percent of
the amount of insured losses of the eligible State program of the
purchaser in excess of the amount of retained losses that the contract
requires, pursuant to subsection (b), to be incurred by such program.
(d) Maximum Federal Liability.--
(1) In general.--Notwithstanding any other provision of
law, the Secretary may sell only contracts for reinsurance
coverage under this Act in various amounts that comply with the
following requirements:
(A) Estimate of aggregate liability.--The aggregate
liability for payment of claims under all such
contracts in any single year is unlikely to exceed
$200,000,000,000 (as such amount is adjusted under
paragraph (2)).
(B) Eligible loss coverage sold.--Eligible losses
covered by all contracts sold within a State during a
12-month period do not exceed the difference between
the following amounts (each of which shall be
determined by the Secretary in consultation with the
Commission):
(i) The amount equal to the eligible loss
projected to be incurred once every 500 years
from a single event in the State.
(ii) The amount equal to the eligible loss
projected to be incurred once every 200 years
from a single event in the State.
(2) Annual adjustments.--The Secretary shall annually
adjust the amount under paragraph (1)(A) (as it may have been
previously adjusted) to provide for inflation in accordance
with an inflation index that the Secretary determines to be
appropriate.
SEC. 9. CATASTROPHE CAPITAL RESERVE FUNDS.
(a) Establishment.--Any insurer who participates in an eligible
State program under section 7(a) may establish a Catastrophe Capital
Reserve Fund (in this section referred to as a ``reserve fund'') in
which it may hold funds in a fiduciary capacity on behalf of the
Secretary.
(b) Funding.--An insurer may fund a reserve fund by making an
election, in advance, to treat some or all of the premiums received for
such coverage as charges imposed by the Secretary for participation in,
and operation of, the program for reinsurance coverage under this Act.
Any such premiums for which such an election has been made shall be
maintained in a segregated account in a fiduciary capacity on behalf of
the Secretary. Such funds may be invested in any otherwise legally
permissible manner but all interest, dividends, and capital
accumulations also shall be retained in such segregated account on
behalf of the Secretary.
(c) Use.--Amounts in a reserve fund established pursuant to this
section shall be collected and used by the Secretary to offset, in
whole or in part, the cost to the Secretary of claims paid under
reinsurance coverage provided under the program, except that, in the
case only of a single event that results in an amount of eligible
losses to insurers that is equal to or greater than the amount of such
losses projected to be incurred from a single event having an extent of
such losses such that the event has a 1.0 percent chance of occurring
in any year, an insurer may first use the funds in a reserve fund of
the insurer to satisfy any one or more of the following:
(1) The retained losses for the insurer required under
section 8(b).
(2) The portion of the insurer's losses that exceed the
required retained losses but are not compensated under a
reinsurance contract made available under the Program pursuant
to section 8(c).
(3) The insurer's obligations to pay for insured losses if
any conditions precedent to payment under a contract for
reinsurance made available under the Program are not met.
(4) Any risk-sharing obligations that the insurer may have
entered into.
(d) Termination.--
(1) Termination of program.--Upon termination under section
14 of the program under this Act, and subject to the continuing
authority of the Secretary to adjust claims in satisfaction of
contracts for reinsurance in force under the Program, 10
percent of each insurer's reserve funds shall be remitted to
the Secretary and the remainder shall be remitted to the
insurer. The Secretary shall determine the manner in which the
remittance of such income to the insurer shall be made.
(2) Elimination of coverage of insured losses in excess of
retained losses.--If at any time the Program remains in effect
but contracts for reinsurance under the Program do not provide
any payment for insured losses in excess of retained losses,
the reserve funds shall be retained and used for the purposes
set forth in subsection (c) of this section. At such time as an
insurer's liability for insured losses under the Program
terminates, as a consequence of the insurer's termination of
its business or otherwise, the insurer shall remit any amounts
remaining in its reserve funds to the Secretary.
SEC. 10. CONSUMER HURRICANE, EARTHQUAKE, LOSS PROTECTION (HELP) FUND.
(a) Establishment.--There is established within the Treasury of the
United States a fund to be known as the Consumer HELP Fund (in this
section referred to as the ``Fund'').
(b) Credits.--The Fund shall be credited with--
(1) amounts received annually from the sale of contracts
for reinsurance coverage under this Act;
(2) any amounts borrowed under subsection (d);
(3) any amounts earned on investments of the Fund pursuant
to subsection (e); and
(4) such other amounts as may be credited to the Fund.
(c) Uses.--Amounts in the Fund shall be available to the Secretary
only for the following purposes:
(1) Contract payments.--For payments to covered purchasers
under contracts for reinsurance coverage for eligible losses
under such contracts.
(2) Commission costs.--To pay for the operating costs of
the Commission.
(3) Administrative expenses.--To pay for the administrative
expenses incurred by the Secretary in carrying out the
reinsurance program under this Act.
(4) Termination.--Upon termination under section 14, as
provided in such section.
(d) Borrowing.--
(1) Authority.--To the extent that the amounts in the Fund
are insufficient to pay claims and expenses under subsection
(c), the Secretary may issue such obligations of the Fund as
may be necessary to cover the insufficiency and shall purchase
any such obligations issued.
(2) Public debt transaction.--For the purpose of purchasing
any such obligations, the Secretary may use as a public debt
transaction the proceeds from the sale of any securities issued
under chapter 31 of title 31, United States Code, and the
purposes for which securities are issued under such chapter are
hereby extended to include any purchase by the Secretary of
such obligations under this subsection.
(3) Characteristics of obligations.--Obligations issued
under this subsection shall be in such forms and denominations,
bear such maturities, bear interest at such rate, and be
subject to such other terms and conditions, as the Secretary
shall determine.
(4) Treatment.--All redemptions, purchases, and sales by
the Secretary of obligations under this subsection shall be
treated as public debt transactions of the United States.
(5) Repayment.--Any obligations issued under this
subsection shall be repaid including interest, from the Fund
and shall be recouped from premiums charged for reinsurance
coverage provided under this Act.
(e) Investment.--If the Secretary determines that the amounts in
the Fund are in excess of current needs, the Secretary may invest such
amounts as the Secretary considers advisable in obligations issued or
guaranteed by the United States.
(f) Prohibition of Federal Funds.--Except for amounts made
available pursuant to subsection (d) and section 3(h), no further
Federal funds shall be authorized or appropriated for the Fund or for
carrying out the reinsurance program under this Act.
SEC. 11. ANNUAL STUDY CONCERNING BENEFITS OF REINSURANCE PROGRAM.
(a) In General.--The Secretary shall, on an annual basis, conduct a
study and submit to the Congress a report that--
(1) analyzes the cost and availability of homeowners'
insurance for losses resulting from catastrophic natural
disasters covered by the reinsurance program under this Act;
(2) describes the efforts of the participating States in--
(A) enacting preparedness, prevention, mitigation,
recovery, and rebuilding standards; and
(B) educating the public on the risks associated
with natural catastrophe; and
(3) makes recommendations regarding ways to improve the
program under this Act and its administration.
(b) Contents.--Each annual study under this section shall also
determine and identify, on an aggregate basis--
(1) for each State or region, the capacity of the private
homeowners' insurance market with respect to coverage for
losses from catastrophic natural disasters;
(2) for each State or region, the percentage of homeowners
who have such coverage, the catastrophes covered, and the
average cost of such coverage; and
(3) for each State or region, the effects this Act is
having on the availability and affordability of such insurance.
(c) Timing.--Each annual report under this section shall be
submitted not later than March 30 of the year after the year for which
the study was conducted.
(d) Commencement of Reporting Requirement.--The Secretary shall
first submit an annual report under this section not later than two
years after the date of the enactment of this Act.
SEC. 12. DEFINITIONS.
For purposes of this Act, the following definitions shall apply:
(1) Commission.--The term ``Commission'' means the National
Commission on Catastrophe Risks and Insurance Loss Costs
established under section 3.
(2) Covered perils.--The term ``covered perils'' means the
natural disaster perils under section 6.
(3) Covered purchaser.--The term ``covered purchaser''
means an eligible State-operated insurance or reinsurance
program that purchases reinsurance coverage made available
under a contract under section 7.
(4) Disaster area.--The term ``disaster area'' means a
geographical area, with respect to which--
(A) a covered peril specified in section 6 has
occurred; and
(B) a declaration that a major disaster exists, as
a result of the occurrence of such peril--
(i) has been made by the President of the
United States; and
(ii) is in effect.
(5) Eligible losses.--The term ``eligible losses'' means,
with respect to a contract for reinsurance coverage made
available under this Act for a covered purchaser, the insured
losses of the covered purchaser that exceed the amount of
retained losses that the contract requires, pursuant to section
8(b), to be incurred by the eligible State program of such
purchaser, as defined by the Secretary after consultation with
the Commission.
(6) Eligible state program.--The term ``eligible State
program'' means a State program that, pursuant to section 7(a),
is eligible to purchase reinsurance coverage made available
through contracts under section 7, or a multi-State program
that is eligible to purchase such coverage pursuant to section
7(c).
(7) Insured loss.--The term ``insured loss'' means, with
respect to contract for reinsurance coverage made available
under this Act for a covered purchaser, any loss resulting from
a covered peril that is covered by insurance or reinsurance
made available under the eligible State program of the covered
purchaser.
(8) Price gouging.--The term ``price gouging'' means the
providing of any consumer good or service by a supplier related
to repair or restoration of property damaged from a catastrophe
for a price that the supplier knows or has reason to know is
greater, by at least the percentage set forth in a State law or
regulation prohibiting such act (notwithstanding any real cost
increase due to any attendant business risk and other
reasonable expenses that result from the major catastrophe
involved), than the price charged by the supplier for such
consumer good or service immediately before the disaster.
(9) Qualified lines.--The term ``qualified lines'' means
lines of insurance coverage for which losses are covered under
section 5 by reinsurance coverage under this Act.
(10) Reinsurance coverage.--The term ``reinsurance coverage
under this Act'' means coverage under contracts made available
under section 7.
(11) Secretary.--The term ``Secretary'' means the Secretary
of the Treasury.
(12) State.--The term ``State'' means the States of the
United States, the District of Columbia, the Commonwealth of
Puerto Rico, the Commonwealth of the Northern Mariana Islands,
Guam, the Virgin Islands, American Samoa, and any other
territory or possession of the United States.
SEC. 13. REGULATIONS.
The Secretary, in consultation with the Secretary of the Department
of Homeland Security, shall issue any regulations necessary to carry
out the program for reinsurance coverage under this Act.
SEC. 14. TERMINATION.
(a) In General.--Except as provided in subsection (b), the
Secretary may not provide any reinsurance coverage under this Act
covering any period after the expiration of the 20-year period
beginning on the date of the enactment of this Act.
(b) Extension.--If upon the expiration of the period under
subsection (a) the Secretary, in consultation with the Commission,
determines that continuation of the program for reinsurance coverage
under this Act is necessary or appropriate to carry out the purpose of
the program under section 4(b) because of insufficient growth of
capacity in the private homeowners' insurance market, the Secretary
shall continue to provide reinsurance coverage under this Act until the
expiration of the 5-year period beginning upon the expiration of the
period under subsection (a).
(c) Repeal.--Effective upon the date that reinsurance coverage
under this Act is no longer available or in force pursuant to
subsection (a) or (b), this Act (except for this section) is repealed.
(d) Deficit Reduction.--The Secretary shall cover into the General
Fund of the Treasury any amounts remaining in the Fund under section 10
upon the repeal of this Act under subsection (c).
SEC. 15. GAO STUDY OF THE NATIONAL FLOOD INSURANCE PROGRAM AND
HURRICANE-RELATED FLOODING.
(a) In General.--In light of the flooding associated with Hurricane
Katrina, the Comptroller General of the United States shall conduct a
study of the availability and adequacy of flood insurance coverage for
losses to residences and other properties caused by hurricane-related
flooding.
(b) Contents.--The study under this section shall determine and
analyze--
(1) the frequency and severity of hurricane-related
flooding during the last 20 years in comparison with flooding
that is not hurricane-related;
(2) the differences between the risks of flood-related
losses to properties located within the 100-year floodplain and
those located outside of such floodplain;
(3) the extent to which insurance coverage referred to in
subsection (a) is available for properties not located within
the 100-year floodplain;
(4) the advantages and disadvantages of making such
coverage for such properties available under the national flood
insurance program;
(5) appropriate methods for establishing premiums for
insurance coverage under such program for such properties that,
based on accepted actuarial and rate making principles, cover
the full costs of providing such coverage;
(6) appropriate eligibility criteria for making flood
insurance coverage under such program available for properties
that are not located within the 100-year floodplain or within a
community participating in the national flood insurance
program;
(7) the appropriateness of the existing deductibles for all
properties eligible for insurance coverage under the national
flood insurance program, including the standard and variable
deductibles for pre-FIRM and post-FIRM properties, and whether
a broader range of deductibles should be established;
(8) income levels of policyholders of insurance made
available under the national flood insurance program whose
properties are pre-FIRM subsidized properties;
(9) how the national flood program is marketed, if changes
can be made so that more people are aware of flood coverage,
and how take-up rates may be improved;
(10) the number of homes that are not primary residences
that are insured under the national flood insurance program and
are pre-FIRM subsidized properties; and
(11) suggestions and means on how the program under this
Act can better meet its stated goals as well as the feasibility
of expanding the NFIP to cover the perils covered by this Act.
(c) Consultation With FEMA.--In conducting the study under this
section, the Comptroller General shall consult with the Director of the
Federal Emergency Management Agency.
(d) Report.--The Comptroller General shall complete the study under
this section and submit a report to the Congress regarding the findings
of the study not later than 5 months after the date of the enactment of
this Act.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Financial Services.
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