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Two Bills On Home Insurance Approved By House Committee
2010-05-04
On April 27th, 2010, the House Financial Services Committee approved two bills affecting home owner insurance. The first measure, the FHA Reform Act, strengthens the Federal Housing Administration's financial status by granting it the power to increase yearly home insurance premiums. The cap on annual premiums collected by the FHA has been increased from 0.50 percent to 1.5 percent.
This measure, drafted by Rep. Maxine Waters (D-California), was made in response to the housing crisis that resulted in FHA's Capital Reserve account dipping beneath the legal 2 percent level. The new cap on annual home insurance premiums will allow the FHA to make up for this loss by adjusting rates for new borrowers. It also gives the FHA authority to deny lender approval to grant or underwrite FHA-insured loans if the FHA detects fraud or non-compliance. The measure also requires the FHA to improve its reporting systems and make its data more transparent.
The other bill, called the Homeowners' Defense Act, is meant to decrease insurance premiums by allowing partial subsidy by the federal government. Rep. Ron Klein (D-Florida) drafted this measure, with the support of 70 colleagues, and the bill would permit states to opt to join a national pool for catastrophe insurance, in the hope of keeping insurance costs low. Essentially, this program would provide federal backing for catastrophe funds if state funds are dried up after a major disaster. Florida hurricanes, California earthquakes, Arizona wildfires, and Kansas tornadoes could be included among the risks covered in the pool. The Act was partly influenced by the damage done after Hurricane Katrina, whose cost afterward to the average American taxpayer was approximately $800.
"Today marks an important step forward as we continue fighting to bring down home owner insurance costs for hard-working families," Klein said. "By working across party lines with Democrats, Republicans and Independents, we have passed a private-market solution to drive down premiums and make a real difference for homeowners around the country."
The insurance industry remains divided on the Homeowners' Defense Act, derisively calling it the "Beach House Bailout," with taxpayer funds potentially going to protect million-dollar beachside mansions built in hurricane-prone areas. Leading catastrophe response and recovery experts, however, are more positive.
James Lee Witt, co-chair of ProtectingAmerica.org, and former director of the Federal Emergency Management Agency, said, "Moving this bill is a major step toward the establishment of a comprehensive and integrated state and federal, public and private national program to improve the way that American families are prepared for and protected from massive natural catastrophes." Considering that 60 percent of American families live in disaster-prone areas, this Act has the potential for greatly affecting many citizens nationwide.