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Expand Affordable and Available Property Insurance

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By Russell W. Riggs

RISMEDIA, July 15, 2010—The impacts and costs of natural disasters, such as hurricanes, floods and earthquakes, can be devastating to communities. The devastation leaves no segment of the community untouched. Individuals, local and state governments, and all economic sectors may suffer loss of life, destruction of property and devastating financial losses. Recently, hearings in Congress have been held to explore the problems and discuss possible legislative and private sector solutions.

As it stands today, U.S. policy addressing the effects of a natural catastrophe is largely reactive rather than proactive. For example, when Hurricane Katrina struck the southeastern coastline, the federal government paid for much of the cleanup. According to the General Accountability Office, $26 billion of taxpayer dollars went directly to underinsured property owners. That $26 billion was paid by all taxpayers, not just those not living on the Gulf Coast. For insurance companies, the response to these kinds of disasters is obvious: insurers have raised premiums, canceled existing policies or declined to write new policies in disaster-prone areas. More widely available and affordable property insurance would have stressed preparedness and protection, not just post-disaster recovery.

NAR believes that a national, comprehensive natural disaster policy is needed. Such a policy would recognize that property owners, the private insurance markets and all levels of government must work together in order to successfully address the lack of available and affordable property insurance currently affecting some parts of the U.S.

Specifically, NAR supports the creation of a federal policy to address catastrophic natural disasters that:

-Ensures that transparent and comprehensive insurance coverage is available and affordable, with premiums that accurately reflect the risk involved

-Acknowledges the personal responsibility of those living in high-risk areas to undertake mitigation measures, including the purchase of adequate insurance

-Provides property owners adequate incentives to undertake mitigation measures where and when appropriate

-Acknowledges the importance of building codes and smart land-use decisions, while also emphasizing that proper enforcement of both is best left in the hands of state and local governments

-Recognizes the role of states as the appropriate regulators of property insurance markets, while identifying the proper role of federal government intervention in cases of mega-catastrophes, and

-Reinforces the proper role of all levels of government for investing in and maintaining critical infrastructure, including levees, dams, and bridges

Congress is considering legislation that would shift much of the taxpayer burden back to property owners by incentivizing state-government and private-insurance efforts to increase the availability and affordability of property insurance and encourage preparation and mitigation.

H.R. 2555, the “Homeowners’ Defense Act,” would offer a comprehensive solution. A bipartisan bill with more than 70 co-sponsors from 30 different states, it provides access to federal reinsurance and a guarantee for state loan programs, as well as stable funding sources so there is more consistency in insurance availability and affordability.

H.R. 1264, the “Multiple Peril Insurance Act,” would offer property owners windstorm coverage under the National Flood Insurance Program (NFIP) and thereby reduce the cost to taxpayers of future post-hurricane financial assistance. H.R. 5114, the “Flood Insurance Reform Priorities Act” would provide for a five-year extension of the NFIP but includes provisions to eliminate discounted insurance rates for older commercial properties and non-primary residences.

All of these ideas could work together as critical elements of a comprehensive solution. Not only would such measures instill badly needed confidence in disaster-prone real estate markets, they would also ensure that resources are available to rebuild smartly after the next mega-catastrophe.

NAR will continue to work with Congress to ensure meaningful long-term reform is achieved.

For more information, visit: http://www.realtor.org.

Russell W. Riggs is a senior regulatory representative for NAR.

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