Homeowners and Taxpayers Protection Act of 2013
A BILL
To strengthen America’s financial infrastructure, by requiring pre-funding for catastrophe losses using private insurance premium dollars to better prepare and protect homeowners from natural catastrophes and to protect taxpayers from massive bailouts, and to provide dedicated funding from insurance premiums to improve catastrophe preparedness, loss prevention and mitigation, and to improve the availability and affordability of private market homeowners insurance coverage for catastrophic events, and for other purposes.
2. Findings and purpose
Findings— The Congress finds the following:
The economy of the United States, the American taxpayers, and all homeowners need to be better prepared for, and more protected from, major natural catastrophes.
Taking into consideration the current economic and fiscal challenges facing the United States, it is more important than ever to fortify our Nation’s financial infrastructure to be fully prepared for major natural catastrophes and to mitigate the risk of catastrophe as much as possible.
When major catastrophes hit, the Federal Government is called upon to provide significant funding and services to support recovery.
The costs of post-catastrophe Federal “bailouts” are borne by all taxpayers and can create a disincentive to fully prepare for catastrophes.
Historically, the budget for Federal Government has assumed there will be no natural catastrophes, and this lack of pre-funding for catastrophes contributed substantially to annual budget deficits and growing national debt.
The Budget Control Act of 2011 ends an era of unbudgeted recovery assistance and authorizes a fixed level of annual funding for catastrophes relief.
The amount of future catastrophe relief funding is capped at the average amount spent on natural catastrophes during the previous 10 years with the high and low years removed.
By removing the high and low years, the law now caps catastrophes spending at a level that is less than 60 percent of the amount spent on catastrophe relief during the previous 10 years.
Responsibly managing Government spending is a top congressional priority, especially in light of the unprecedented fiscal challenges facing the Nation.
Natural catastrophes will continue to occur, and the exposure to catastrophe risk is growing. Scientists warn that future catastrophes will inevitably cause losses far in excess of prior events, and these losses could exceed the limited capacity in the private market to cover claims and remain viable to insure properties after massive catastrophic events.
In 2011, the earthquake centered in Virginia that shook the East Coast and the extreme weather and deadly super tornadoes that ripped across the country provided powerful reminders that natural catastrophes can strike unexpectedly, severely damaging areas not thought to be at high risk, and no region is immune from the threat of natural catastrophe.
In 2012, the devastation caused by Superstorm Sandy demonstrated yet again the need for a mechanism to ensure that privately funded monies will be available if needed following mega-catastrophes.
To successfully transition to a more limited and targeted Federal role in post-event catastrophe funding, communities must be better prepared for future catastrophes, the risk of damage must be mitigated, and individuals must have greater access to private market protection against catastrophe risk.
The private insurance market alone does not have sufficient capacity to efficiently address the timing risk presented by major natural catastrophes, and there is no guarantee that the level of capacity that does exist will continue to be available from one year to the next or that consumers have the resources to adjust to significant price swings in the cost of the capital for available capacity.
Disruptions in insurance availability and affordability will continue to harm economic activity in States exposed to major catastrophes and place significant burdens on residents of these States.
Consumers in many areas around the country cannot find homeowners insurance in the private market, and affordability and availability challenges will grow dramatically when future major catastrophes strike.
Hurricane Katrina, Superstorm Sandy, and other recent catastrophes confirm that the economic harm from natural catastrophes has a disproportionate impact upon the poor and middle class because areas most frequently and adversely impacted by catastrophic hurricanes have disproportionately high rates of poverty and housing stock valued well below State averages.
A new public-private partnership approach to deal more effectively with major natural catastrophes would more efficiently leverage the public sector and establish a limited, less expensive, more focused role for government while also maximizing the capabilities of the private sector.
A privately funded backstop can provide more protection at lower cost for consumers while also strengthening America’s financial infrastructure to deal with natural catastrophes by increasing capacity and providing more market stability after a catastrophe.
Cost savings can lower premiums for consumers and be used to encourage better prevention and mitigation in lieu of post-event bailouts.
A financial backstop can be structured to be fully funded to protect taxpayers from bailouts and insurance policyholders from subsidies upon which the current system relies.
A public-private partnership model, with an appropriately structured backstop, can protect against the timing risk presented by major natural catastrophes, spread risk more broadly, and enable private direct insurers to underwrite and price insurance for large-scale catastrophes more efficiently and with less risk of insolvency or financial distress while making insurance more available and affordable for consumers.
A public-private partnership model can be structured to include and encourage participation by private market reinsurers.
Incentives and requirements can be created to improve prevention and mitigation measures at the State and local levels, including strong building codes, effective retrofits for existing homes, and sensible land use policies to prohibit further development in environmentally sensitive areas that are highly exposed to catastrophe.
For the majority of Americans, their home is their single biggest asset and protecting that investment is important to the economic health of millions of Americans, to social stability; and to the health of the banking system and broader economy.
The financial crisis of 2008 and recent fiscal challenges confirm the value of taking action in advance to strengthen America’s financial infrastructure through a privately funded backstop rather than waiting for a future crisis or collapse to take emergency action in the form of bailouts.
It is in the best interests of the Nation to take responsible action now to begin to build a financial backstop that will help protect a recovering American economy and mitigate the economic or financial shock that could result from a major catastrophic event.
Purposes— The purposes of this Act are—
to better prepare and protect homeowners and taxpayers from major natural catastrophe;
to establish a fully funded program for catastrophe losses to strengthen the financial infrastructure of the United States;
to protect taxpayers from bailouts and subsidies related to the financing of post-catastrophe catastrophe relief;
to develop a public-private partnership that maximizes and supplements private market capacity, increases the spread of risk, and increases market stability;
to reduce the size of State government insurance exposure;
to make private market homeowners insurance more available and affordable;
to improve emergency preparedness;
to encourage individuals and communities to adopt mitigation and prevention measures that reduce losses from such catastrophes; and
to fortify the Nation’s capacity to assist in the financial recovery from major catastrophes.
3. Definitions
For purposes of this Act, the following definitions shall apply:
Actuarially sound— The term “actuarially sound” means, with respect to premiums, that premiums are determined according to principles of actuarial science to be adequate, but not excessive, in the aggregate to pay current and future obligations, including the expected annualized cost of all claims, loss adjustment expenses, and all administrative costs.
Covered event— The term “covered event” means the occurrence of one or more of the events specified in section 102(c) that causes a loss or series of losses.
Covered state— The term “covered States” means, with respect to a State plan, a State covered by the plan.
Eligible state plan— The term “eligible State plan” means a State plan or multi-State plan that meets the requirements of section 102(d).
Emergency response providers— The term “emergency response providers” has the meaning given such term in section 2 of the Homeland Security Act of 2002 (6 U.S.C. 101).
Fund— The term “Fund” means the Catastrophe Preparedness Fund established under section 102(g).
Insured loss— The term “insured loss” means any loss and associated loss adjustment expense insured or reinsured by an eligible State plan.
Liquidity loan— The term “liquidity loan” means a loan to an eligible State plan made under section 103.
Multi-state plan— The term “multi-State plan” means a State plan described in paragraph (13)(A)(ii) of this section.
Qualified entity— The term “qualified entity” means a private market reinsurer or other private sector entity that has satisfied the criteria established by the Secretary to be treated as a qualified entity for the purposes of section 102(e).
Secretary— The term “Secretary” means the Secretary of the Treasury except as specifically provided otherwise.
State— The term “State” includes the several States of the United States, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, the United States Virgin Islands, and American Samoa, and any other territory or possession of the United States.
State plan— The term “State plan” means a plan that—
is created or administered by—
a single State; or
two or more States; and
provides insurance or reinsurance protection to address natural catastrophe preparedness and protection, and in the case of a plan described in subparagraph (A)(ii), provides such protection as part of a program covering multiple States.