U.S. Rep. Rooney introduces national tax-deferred emergency reserve bill for insurance companies

Feb 12, 2009

Treasure Coast Palm--February 11, 2009

By Jim Turner

Congressman Tom Rooney, R-Tequesta, introduced legislation Wednesday that would create a tax-deferred reserve to allow insurance companies to set aside money for future disasters.

“It is very clear the current system needs to be changed and serious reforms are needed,” he said. “Insurance companies need to be able to save for future losses to help drive down property insurance rates and keep companies solvent in the event of a disaster.”

The effort is considered a plan B to the national catastrophe fund proposals that have been opposed by interior states.

According to Rooney’s office, this is a different concept than the national catastrophe fund in which the federal government would set aside money for disaster responses.

Rooney’s proposal would allow insurance companies to set aside money, tax free, in order to pay for future disasters. The companies could only use the money once there has been a disaster and an emergency has been declared.

Currently, insurance companies can only reserve against losses that have already occurred.

The hurdle will be getting insurance companies to buy into the idea. Rooney believes he has a few already in support.

“Just last month we saw State Farm announce they will be dropping all property insurance policies in Florida,” said Rooney. “We must take action now to help make property insurance more affordable and keep companies doing business in Florida. This legislation will help protect policyholders in the event their insurance company goes bankrupt in the event of a major disaster.”

Many insurers have supported this idea as a broad approach to financing catastrophe risk, said Lynne McChristian, Florida representative to the Insurance Information Institute.

“It really is important to note that when we talk about solvency issues, having adequate property insurance rates must be part of the discussion,” she said. “We live in the most exposed state in the country – with $2.459 trillion in exposure. That’s an increase of $522 billion from 2004 – when the exposure was $1.937 trillion.”

The amount is up 27 percent since 2004.