Hearing on “Approaches to Mitigating and Managing Natural Catastrophe Risk: H.R. 2555, The Homeowners’ Defense Act”

"Thank you, Chairman Kanjorski, for joining me for this joint hearing on "Approaches to Mitigating and Managing Natural Catastrophe Risk: H.R. 2555, The Homeowners' Defense Act."

In the wake of Hurricane Andrew, almost 18 years ago, 11 insurers became insolvent and another 63 announced plans to withdraw or limit their insurance writing ability in the state. But the costs associated with Hurricane Andrew pale in comparison to those of the 2005 hurricanes: Katrina, Rita, and Wilma. Insured losses from those storms total over $56 billion.

Although, only one insurer became insolvent as a result of paying claims resulting from those storms, following Katrina some insurers began pulling out of areas along the Gulf Coast. Those who haven't left yet have raised rates on homeowners, with some families seeing a 600 percent increase in their insurance premiums. In the meantime, the capacity of wind and earthquake insurance companies has declined by 61 percent and 22 percent, respectively.

As we all know, much work is still needed to rebuild the Gulf Coast. However, without affordable and available homeowners' insurance, many families will either never return to this region or will risk losing everything in another storm.

The bill introduced by Mr. Klein seeks to address the reinsurance crisis facing the nation's insurers by creating a consortium to encourage risk transfer into the capital markets, a new federal reinsurance program for state catastrophe funds, and allowing the Federal government to guarantee loans to state catastrophe insurance programs.

I am especially interested in how this bill would increase the availability of earthquake insurance. The California Earthquake Authority (CEA) is the largest provider of earthquake insurance in the state of California. However, only 12 percent of Californians have earthquake insurance. Moreover, since its inception 11 years ago, CEA has been unable to accumulate the amount of capital it projects it will need in the event of a catastrophic earthquake. I am looking forward to hearing Mr. Pomeroy's testimony on how this legislation will allow the CEA to reduce its claims paying costs and accumulate more capital.

Thank you, Mr. Chairman. I yield back the balance of my time."