Americans for Smart Natural Catastrophe Policy, a national coalition of environmental, consumer, taxpayer, and free market and industry organizations, urged Congress to review carefully the findings of an economic study released Aug. 21 by Robert J. Shapiro, who served as under secretary of commerce for economic affairs in the Clinton Administration, and Aparna Mathur, a research fellow at the American Enterprise Institute, that estimates massive new taxpayer liabilities if natural catastrophe legislation now pending in Congress is adopted. The report is titled “The Economic Effects of Proposals for Federal Natural Catastrophe Reinsurance and New Loan Programs: Who Pays the Benefits?”

The economic study estimates the burdens on individual states from congressional legislation to provide state reinsurance loans, create a federal reinsurance backstop to cover state losses, or expand the National Flood Insurance Program (NFIP) to cover wind damage if the U.S. Gulf Coast suffered a hurricane season comparable to that of 2005.

Taxpayers in 20 states would be hit particularly hard by multi-billion dollar burdens under the legislation, the Shapiro-Mathur economic study finds. These include $19 billion for Californians, $11 billion for New Yorkers, $7 billion for Illinoisans, $6 billion for Pennsylvanians and taxpayers in New Jersey, $5 billion for those in Ohio, $4 billion each for taxpayers in Massachusetts, Michigan and Virginia, and at least $3 billion for those in Connecticut, Indiana, Maryland, Minnesota, North Carolina, and Washington.

The new economic study reports that these massive new taxpayer burdens would be imposed by Congress despite the fact that the private insurance and reinsurance arrangements already in place have worked well. Shapiro and Mathur demonstrate that the congressional proposals would displace private capital deployed in insurance and reinsurance companies and, in its place, force enormous financial transfers from taxpayers in most states to some businesses and residents of Gulf states, especially in Florida.

Release of the Shapiro-Mathur economic study comes in advance of the expected convening of a Congressional conference committee to resolve differences between the Senate and the House of Representatives over whether to add wind coverage to the already financially insolvent NFIP, which is $18 billion in debt. The House voted in 2007 to add wind coverage to the NFIP; this spring, the U.S. Senate rejected such wind coverage by the resounding margin of 74-19.

“The findings from this report are alarming, especially in light of clear evidence that climate change is increasing the likelihood of larger and more frequent storms,” said David Conrad, senior water resources specialist at the National Wildlife Federation, a member organization of Americans for Smart Natural Catastrophe Policy. “The time is now for Congress to weigh not only the enormous financial burden that this fatally flawed legislation would place on taxpayers, but also to consider the fact that these bills would likely encourage irresponsible building and rebuilding in destruction’s path, and carelessly putting fragile oceanfront ecosystems in jeopardy.”

Following its overwhelming rejection of adding wind coverage to the NFIP, the Senate adopted a proposal to create a national commission of experts to study natural catastrophe insurance policy and the fiscal and environmental effects of the various major legislative proposals. Americans for Smart Natural Catastrophe Policy supports the creation of such a commission and believes that the new commission’s findings will mirror those of the Shapiro-Mathur report, as well as findings by research firm Towers Perrin, which predicts losses of up to $200 billion if a federal program replaces private sector catastrophic wind insurance.

“We shouldn’t displace productive private insurance and reinsurance industries with expensive, unworkable government programs,” said Eli Lehrer, senior fellow with the Competitive Enterprise Institute, another member organization of Americans for Smart Natural Catastrophe Policy. “The House and Senate conferees on the National Flood Insurance Program should take a very careful look at this groundbreaking study. Above all else, we need to create an insurance environment that preserves the environment and encourages safe, effective building. A national catastrophe policy commission could play an important role pointing the way toward a better system for managing catastrophes.”

Americans for Natural Catastrophe Policy believes there is a better way and urges Congress to enact the Property Mitigation Assistance Act (H.R. 6424), sponsored by Homeland Security Committee Chairman Rep. Bennie Thompson, D-Miss., as a environmentally responsible and fiscally sound alternative to the Homeowners’ Defense Act (H.R. 3355), which would create a federal natural catastrophe backup fund, and to the House-passed version of the Flood Insurance Reform and Modernization Act (H.R. 3121), which would add wind coverage to the NFIP. Chairman Thompson’s approach serves to promote public safety without creating a massive federal bailout program or financially overwhelming the National Flood Insurance Program.

Source: Americans for Smart Natural Catastrophe Policy

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