If a hurricane blows away your Boca Raton beach house, AllState — one of the largest providers of homeowners’ insurance in Florida — hopes taxpayers will guarantee your policy so it won’t have to.
AllState is funding Protecting America, a coalition of companies and government and community organizations that is supporting the Homeowners Defense Act introduced by Rep. Ron Klein and awaiting committee review on Capitol Hill. Half of Protecting America’s board members have ties to the two largest private insurers — State Farm and AllState — in Florida.
Klein, who represents a district stretching from West Palm Beach to Boca Raton, has championed the legislation as an alternative to the emergency supplemental aid Congress often passes in the wake of a Katrina-scale disasters.
“Although it has become clear in recent weeks that big offshore insurance companies who oppose this bill will say anything to protect their profits, I am here to set the record straight. I believe strongly in the power of the free market, and we have no intent to subvert it or eliminate the insurance industry,” said Klein in testimony before the House Financial Services Committee.
Yet Klein’s legislation provides a guarantee backed by federal credit. The history of Florida’s state-run insurance program, which has nearly $500 billion in liabilities and is running a deficit, suggests the picture of government guarantees is not rosy. State insurance will reportedly face a $14 billion shortfall if a major hurricane hits.
Opponents say the Homeowners Defense Act creates incentives for real-estate developers to take on risky projects while creating liabilities for the federal government. Supplementals, goes the argument, are a one-time expense, while a federal guarantee program would lead to higher overall disaster clean-up costs.
Americans for Tax Reform said in a statement that the bill will, “insert the federal government into previously private insurance and reinsurance marketplaces at enormous costs to taxpayers. The bill … offers federal guarantee of state bonds related to catastrophes. In the long term, such ‘backstop’ measures will result in wasteful spending, larger deficits, and, eventually, higher taxes.”
“We’re trying to take some cost out of the market so that insurance companies don’t have to pay such super-high rates in reinsurance,” argued Peter McDonough, a spokesman for Protecting America. Insurance companies take out “reinsurance” on their own policies as an additional layer of protection, which can account for as much as 30 percent of their costs. McDonough said under the new program insurance companies would be required to pass savings onto consumers.
The bill has created unusual alliance between taxpayer rights groups like the Heartland Institute and the National Wildlife Foundation, which have bonded together in opposition to the bill. The groups oppose the legislation for different — fiscal and environmental — reasons, but the gist is the same – both groups believe the legislation would create strong incentives for people to develop homes in risky and environmentally sensitive areas, requiring subsidies to maintain low insurance rates.
(4 votes, average: 5.00 out of 5)
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