This month, Rep. Albio Sires (D-N.Y.) reintroduced legislation that would create a federal backstop for disaster insurance, replacing private-sector insurance with the American taxpayer. It is a “Beach House Bailout” that will put billions of taxpayer dollars at risk to help those who have beach houses and other types of beachfront properties while still leaving communities vulnerable to severe storms.
Rep. Sires’ bill (HR.1101) would displace private property and casualty insurance with a costly federal reinsurance scheme and loan program to bailout state insurance programs. The Beach House Bailout would create a national catastrophe fund and loan program designed primarily to subsidize expensive beachfront homes, at taxpayers’ expense, in Florida – the world’s most active hurricane region. This federal government backstop would add significant new taxpayer obligations that would do little to dis-incentivize the risky behaviors that exacerbate the impact of major climate events.
The legislation is based on the Homeowner’s Defense Act of 2007 – a bill that would have created a public insurance scheme and would have made taxpayers responsible for most insured losses – and had the potential to cost taxpayers more than $200 billion, according to a study done in 2008. By supplanting the private insurance and reinsurance markets, this approach would create a government backstop akin to Fannie Mae and Freddie Mac, the two government-sponsored entities that have now cost American taxpayers $180 billion.
Ironically, Sires’ bill – dubbed the Homeowners and Taxpayers Protection Act - will not actually protect homes or the taxpayer. Instead, it will result in even more environmentally damaging and high-risk coastal development and end up costing taxpayers. Setting up Uncle Sam to be the backstop of unstable catastrophe insurance funds is almost certain to result in more, not less, damage to peoples’ homes, because it fundamentally undercuts needed and vital efforts to mitigate, control and reduce hurricane and storm risks.
The Beach House Bailout would provide insurance at highly subsidized rates, regardless of need. Subsidizing insurance coverage not only burdens taxpayers, it incentivizes people to live in dangerous areas and discourages life-saving mitigation.
Underpriced insurance does not provide accurate information about risk, creating a subsidy to develop in risky areas — areas that also provide natural protection from storms. This development directly harms this nation’s residents and communities by eroding our natural barriers to storms and their impact.
Instead of providing a taxpayer-funded insurance scheme, Congress should pursue a national mitigation strategy to protect properties and communities so they can withstand the next storm. Mitigation saves lives, reduces damage and is cost effective. For every dollar spent on risk-reducing measures, four dollars are saved in clean up and rebuilding costs.
It is times for Congress to explore national disaster policies that concentrate on how to protect lives and property before Mother Nature strikes instead of reacting to natural disasters after the fact. Rejecting the Beach House Bailout and pursuing a national mitigation strategy instead would be a good start.
Written by: Steve Ellis, vice president of Taxpayers for Common Sense; And Joshua Saks, legislative director at the National Wildlife Federation.
Original Publication URL: http://thehill.com/blogs/congress-blog/economy-a-budget/292689-homeowner-insurance-bill-hurts-taxpayers
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