Natural Catastrophe Insurance

The Issue

The availability and cost of property insurance in areas hit by natural catastrophes has been a major public policy concern in Congress for several years. In 2007, the House of Representatives passed H.R. 3355, the Homeowners' Defense Act of 2007, designed to help address the availability and affordability of homeowners insurance in catastrophe-prone areas. The bill would have provided a mechanism for state-sponsored insurance funds to pool their catastrophe risk with one another, and then transfer that risk to the private markets through the use of catastrophe bonds and reinsurance contracts. In addition, the legislation created a federal program to provide federal loans to states that had suffered severe natural disasters, with the aim of ensuring capital liquidity in the insurance markets. These legislative efforts, however, failed to advance in the Senate.

The legislation that passed the House attempted to address the lack of insurance for homeowners, but did nothing to address issues concerning the high costs and lack of availability of commercial property insurance in areas hit by natural disasters. At that time, NAIOP, along with other national real estate organizations, formed the Natural Catastrophe Policyholders Coalition (NCPC) to advocate on behalf of commercial property owners and developers on matters affecting insurance affordability and availability in catastrophe-prone areas.

Position

NAIOP supports federal action to address the severe insurance problems faced by states in natural catastrophe disaster-prone areas, and encourages the development of a comprehensive natural catastrophe legislative solution. Legislation should ensure that coverage for commercial real estate properties is included as part of an overall, long-term solution.

Talking Points

• American taxpayers currently pay billions of dollars in aid to areas affected by natural disasters. The federal government can play a role that would encourage the development of insurance markets that will provide adequate and affordable coverage for homeowners and commercial property owners while saving taxpayer dollars in the long run.
• The reinsurance market has not yet developed sufficient capacity to cover losses from natural catastrophes. A long-term federal solution is required in order to ensure certainty in the commercial real estate industry.
• Without adequate insurance coverage, building owners could find themselves unable to finance property sales or refinance existing debt, resulting in a lack of liquidity that would severely hamper commercial real estate markets.

Legislation

• H.R. 2555

• GAO Report: Public Policy Options for Changing the Federal Role in Natural Catastrophe Insurance
• Natural Catastrophe Policyholders Coalition