Do Some Members of Congress
Want You to
Subsidize Earthquake and Hurricane Damage Relief?
I admit that this column may read more like
an editorial than a consumer protection column, but I want you
to know about important federal legislation that could affect
your pocketbook through higher homeowner insurance rates.
In September, a Milwaukee Journal Sentinel
article noted Wisconsin is one of the safest places in the nation
to live from a risk perspective. Obviously we suffer from blizzards
and summer storms, but the insurance industry does not consider
us to be in a high-risk area for tornadoes, wildfires, heat
waves, earthquakes, and hurricanes. For this reason, we enjoy
some of the lowest homeowner insurance rates in the nation.
However, Congress is now considering a bill
sponsored by a Florida representative that would essentially
ask Wisconsin consumers to subsidize the insurance of those
who have chosen to live in riskier areas, such as along the
hurricane-prone Gulf Coast or the earthquake-prone West Coast.
The bill, known as H.R. 4366, states that it “establishes
a program to provide reinsurance for state natural catastrophe
insurance programs to help the United States better prepare
for and protect its citizens against the ravages of natural
Devil In the Details
On its face, the bill seems like a worthy
initiative. It is even supported by a red, white, and blue-colored
website and newspaper ad campaign that runs under the banner,
“Be Part of Protecting America.”
However, the truth of the bill appears to
be in its details and may not be good for us. The bill creates
a complex system of private reinsurers purchasing reinsurance
from state catastrophe funds that bought the reinsurance from
the U.S. Treasury. It appears to me that this complicated system
is intended to ensure low-risk states like Wisconsin end up
paying part of the bill for earthquakes and hurricanes so that
insurance companies will offer more insurance in those riskier
Am I off target on my concerns? Apparently
not. Dennis C. Burke, vice president of state relations for
the Reinsurance Association of America, testified in Congress
last June that the bill is not needed and “creates unfair
cross subsidies.” He explained, “Coastal and earthquake-prone
properties are subsidized by property policyholders that cannot
afford or choose not to live in such hazard zones.” He
also noted that insurers made profits in 2005 despite the large
number of hurricanes striking Florida.
I support the philosophy behind insurance:
Those facing similar risks band together to provide mutual financial
support in the event that the risk event happens to some members
of the group. However, is it fair to ask those who do not face
the risk of hurricanes and earthquakes at all to share that
If you have similar concerns about H.R. 4366,
you may want to consider contacting your member of Congress.
You can find contact information for your U.S. House of Representatives
member at www.house.gov/writerep.
There is a similar Senate bill, S. 3117, that you may want to
discuss with our senators. Senator Herb Kohl can be reached
by calling toll free at 1-800-247-5645 or by writing to him
from his website at kohl.senate.gov/gen_contact.html. Senator
Russ Feingold can be reached by calling 1-202-224-5323 or by
writing to him at email@example.com.