House proposes disaster insurance pool
A house burns in Poway, Calif., during the Witch Fire on Oct. 23.
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KAI RYSSDAL: The East Coast and states along the Gulf of Mexico have their hurricanes. We've got wildfires and earthquakes out here. Not what you might call the most profitable places for insurance companies to set up shop. But the government's here to help. The House of Representatives wants to encourage states to set up an alternative to private property insurance. Marketplace's John Dimsdale reports from Washington.
JOHN DIMSDALE: States say they've been forced to become the insurer of last resort for homeowners when insurance companies either raise rates, or pull out, after catastrophes. Under this bill, those states could pool their funds to share the risk. And following a major disaster, the bill allows the federal government to lend the state programs money. The bill's authors say around 35 states have government-sponsored property insurance programs eligible for the national pool. On the House floor, Florida Democrat Kathy Castor argued the bill is not just for her state.
KATHY CASTOR: Everyone is suffering these double digit percentage increases in their property insurance bills. Look across the country to California. Florida is not alone. And the Gulf coast is not alone.
But many in the insurance industry, especially reinsurers who backstop insurance companies, say the government is moving in on their business. Bob Hartwig is with the Insurance Information Institute.
BOB HARTWIG: The view of reinsurers is that what will happen if the federal government comes to play an important role in reinsuring catastrophic risk is, the true cost of living in an area vulnerable to hurricanes or earthquakes or wildfires will not be reflected in the cost. And when that happens you wind up with excessive development in areas that are prone to natural disasters.
New York Democratic Senator Hillary Clinton yesterday introduced a companion bill in the Senate. If the Senate approves it, the White House is threatening a veto, citing the bill's market-distorting potential.
In Washington, I'm John Dimsdale for Marketplace.