U.S. Rep. Ron Klein: Homeowners’ Defense Act lowers insurance costs

Jun 23, 2008

Palm Beach Post--June 22, 2008

Special to The Post

We’re three weeks into hurricane season, and as South Florida residents prepare for the first big storm, they have a right to ask their elected representatives: What have we done to bring down skyrocketing homeowners’ insurance costs, who stands with homeowners and who stands in the way?

In the U.S. House of Representatives, the answer is clear. We passed the Homeowners’ Defense Act (HR 3355), landmark legislation that pools the risk of damage from natural disasters nationwide and brings real relief to homeowners in Florida and across the country struggling with unaffordable insurance rates.

This legislation, which I wrote along with Rep. Tim Mahoney, D-Palm Beach Gardens, creates a national fund to pool the risk of such disasters as hurricanes, tornadoes, earthquakes and wildfires and makes sure that insurance is doing what it is supposed too: Spread the risk. Our bill marked the first time catastrophe legislation ever passed a house of Congress, and it is a true victory for Florida homeowners.

Insurance rates in Florida are through the roof. One homeowner in my district paid just over $3,000 a year for her policy in 2005. The bill last year? A whopping $16,000. That kind of increase would always be a huge hit on a family’s budget, but in these tough economic times, it can be the breaking point.

The idea of easing this burden with a national catastrophe fund has been bipartisan from the very start, and has picked up steam along the way. The Homeowners’ Defense Act in its final form passed the U.S. House with an overwhelming bipartisan majority, and is strongly supported by 100 percent of Florida’s congressional delegation – 16 Republicans and nine Democrats.

Knowing the importance of this issue to Floridians, I sent a letter outlining the Homeowners’ Defense Act to every presidential candidate early in the nominating process. We received strong support from former New York City Mayor Rudy Giuliani, Sen. Hillary Clinton and presumptive Democratic nominee Sen. Barack Obama.

Yet President Bush has inexplicably threatened to veto this legislation because he believes that market forces will solve the problem. Unfortunately for Florida homeowners, Sen. John McCain, the presumptive Republican nominee for president, has fallen in line behind him. Worse still, Sen. McCain’s reasons for opposing a catastrophe fund appear to be based on misinformation, or a misunderstanding of how the fund works.

I am disappointed in President Bush’s and Sen. McCain’s position. In the interest of providing homeowners with the relief they need, there are a few key facts to set straight. The national risk catastrophe fund is:

Cost-efficient. Sen. McCain says he opposes the HDA because it would cost $200 billion per year. Wherever Sen. McCain got this number, it is flat wrong. The nonpartisan Congressional Budget Office estimates that the bill would cost $25”million a year – a tiny fraction of Sen. McCain’s claim. The reason for the low cost is that this bill is primarily a private-sector solution.

A market-based solution. Sen. McCain argues that we don’t need a catastrophe fund because FEMA can take care of natural disasters. First of all, anyone who saw what happened in the aftermath of Hurricanes Katrina and Rita would agree that FEMA is not functioning at the level it should. More important, Sen. McCain misunderstands either the mandate of FEMA or the purpose of insurance. FEMA is responsible for the cleaning up after a disaster. Insurance is designed to protect assets, but only if it is in place before disaster strikes. I also do not understand why Sen. McCain, who constantly insists that the free market will cure all that ails us, would advocate the government stepping in when a solution that utilizes capital markets, like the Homeowners’ Defense Act, would be more efficient and effective.

A win for homeowners nationwide. In an interview last year, Sen. McCain said, “If people are going to build homes where hurricanes hit, they have to assume a great part of that liability. We don’t have that many hurricanes that hit Arizona.” This cavalier attitude toward homeowners in the path of natural disasters, from hurricanes in Florida to tornadoes in Kansas, and yes, even wildfires in Arizona, is unacceptable. Homeowners’ insurance is unaffordable for families in these regions because the market is not working the way it should. Our legislation creates a national risk catastrophe fund where every state can decide for itself whether or not to participate, and it allows the market to work by pooling risk and reducing costs for homeowners across the country.

Now that they know the facts about a national catastrophe fund, President Bush and Sen. McCain have a choice to make. They can stand with Florida homeowners and help bring their insurance bills down, or they can sit by as rates continue to skyrocket. My first priority is Florida, and homeowners here expect real solutions and leadership in Washington that puts their interests first.