April 11, 2007

Opening Statement of Chairman Chris Dodd - Hearing on "Availability and Affordability of Property and Casualty Insurance in the Gulf Coast and Other Coastal Regions"

The Committee will please come to order. I want to welcome everyone to today’s hearing on the “Availability and Affordability of Property and Casualty Insurance in the Gulf Coast and Other Coastal Regions.” Let me first thank the witnesses who are appearing before the Committee today. I want to particularly thank my colleague Senator Nelson and Governor Crist for appearing at the hearing today, and also Senator Landrieu, who was planning to testify this morning but was called back to her state and is unable to attend. Today’s hearing is on an important and timely topic– insurance in our nation’s coastal regions. Although coastal areas comprise only 17 percent of the contiguous land area in the United States, 55 percent of the nation’s population live in coastal areas. By next year, over 160 million Americans will live and work along America’s expansive coast lines. It is critical that these Americans are able to adequately protect their homes, their businesses and their families from natural disasters. We have all witnessed the devastation that nature can wreak across our country, in the form of hurricanes, floods, tornadoes and earthquakes. In 2005, Hurricanes Katrina, Wilma, and Rita destroyed hundreds of thousands of homes and businesses along the Gulf Coast. In 2004, Hurricanes Frances, Charley and Ivan devastated parts of Florida. In the 1990s, the worst natural disasters were geographically diverse–Hurricane Andrew in Florida in 1992, the Northridge earthquake in California in 1994, and the Red River floods in North Dakota in 1997. Each of these caused billions of dollars in destruction. In order to rebuild homes, businesses and lives, Americans looked to, among others, their insurers as well as their national government for disaster assistance. Unfortunately, insurance coverage is becoming increasingly difficult to secure and afford in many coastal areas from Texas, along the Gulf, and up the East Coast. Insurers are pulling out of high-risk areas. Others are dropping certain coverages, such as windstorm coverage. Others are drastically raising rates and deductibles. Let me just read two examples from recent press articles of how these actions are affecting Americans’ lives and livelihoods. A Chicago Tribune article on March 20, 2007 detailed the situation of Jeffrey O’Keefe, president of the Bradford-O’Keefe Funeral Homes on Mississippi’s Gulf Coast, who has scaled back his insurance coverage. Before Katrina, he paid $61,224 in annual premiums to insure his business, and now “renewing that $7 million in coverage would have cost about $781,000, so he reduced his coverage to $2 million. But he is still paying $122,113 in premiums, twice as much as before the storm.” So, he is paying much more for much less coverage. A Palm Beach Post article from May 29, 2006 tells of Tracy Casper, who dropped her homeowners insurance after her premiums became unaffordable. The article, entitled “Insurance Premiums Force Tough Choices” says, and I quote “Tracy Casper felt ill Mother’s Day weekend. While plenty of people will remember opening sentimental cards, Casper remembers opening her windstorm insurance renewal notice. Her premium had skyrocketed 194 percent to $7,443.” Today, appearing on our second panel, we have with us homeowner Harold Polsky, who was forced to sell his and his wife’s home in Florida because of rising insurance costs. We are also joined by a small business owner from greater New Orleans, David Guidry, who has seen his insurance costs rise, and faces great uncertainty about his ability to shoulder further increases. I would like to take a moment to personally thank the Polskys and Mr. Guidry for taking the time out of their busy schedules, and taking time off of work, to come and speak with us this morning. It is critical that this Committee understand what this issue means to people around the country, and your testimony will help us to do just that. The lack of affordable insurance is a serious problem for millions of Americans across the country. Many states have attempted to address the lack of available and affordable insurance by taking measures such as setting up state insurance pools to cover wind and other damages. However, these states cannot be expected to shoulder the burden alone, given the magnitude of the losses that have occurred over the past few years, and that may occur in the years to come. This is a national problem. As such, it deserves examination by us as national leaders. And it is an appropriate area in which to consider national solutions. Let me be clear at the outset that any federal actions must be carefully crafted to ensure not only that Americans have access to affordable insurance, but also that taxpayers are not overly burdened by the risk of losses that are properly borne by insurers and re-insurers. With that in mind, I believe that we can and should consider a number of steps to help Americans find affordable insurance. Because without insurance, their homes, their businesses, their very futures will be put at unacceptable risk. There are four steps that I propose today that the Congress and the Administration take to provide relief for homeowners and businesses in the coastal areas of our nation. First, given the acute challenges faced by working families and hard working business owners, I believe we ought to provide relief in the form of tax deductions for homeowners insurance premiums in areas where premiums have been significantly increasing. Any deduction should be targeted to working and middle income families who need it most, and should be capped both individually and on a national basis, so as not to exceed $100 million for the year. This homeowners insurance deduction can give homeowners some desperately needed short-term relief from skyrocketing premiums. And it can help ensure that families in hard hit areas are not forced to move while we seek longer term solutions. Second, I believe that our nation should increase our investment in mitigation activities so that communities, families and businesses can protect against future losses. The current FEMA mitigation program provides $100 million in fiscal year 2007. That is, in my view, not enough to assist communities around the country to truly address the risk of loss to their residents. Mitigation efforts are critical, and we should at least double the amount of funding so that communities can assist individual homeowners to strengthen their homes, can fund larger scale mitigation projects to protect whole blocks or communities, and can help people relocate to safer ground. Additional funds should be used to directly assist homeowners and business owners who want to make needed upgrades to help protect their properties. Increased mitigation efforts can help to decease insurance costs, and they can also protect Americans from future devastation caused by natural disasters. Third, we must also strengthen the National Flood Insurance Program. The National Flood Insurance Program is essentially the only insurer of flood risks in the country. As a result of Hurricane Katrina, this program has borrowed funds from the US Treasury and is now over $20 billion in debt. The interest alone on this debt will reach $1 billion annually, close to half of the premium generated in the program each year. Clearly this program was not designed to handle a catastrophe of the magnitude of Katrina. In order to ensure the future availability of flood insurance, we must strengthen this program and put it on sound financial footing, as Senators Shelby, Bunning and others on this Committee worked so hard to do last year. Lastly, we need to gather additional information as we consider longer-term solutions. Today’s witnesses offer a range of views and a number of proposals on what, if anything, should be done at the federal level to improve the long-term availability and affordability of property and casualty insurance. This diversity of opinion is, on one level, healthy and positive. On another level, however, it underscores the fact that there is a lack of consensus among stakeholders and policymakers about what national action, if any, is appropriate in the long-term to help home owners and business owners contend with rising property and casualty premiums. For that reason, I believe we ought to establish a national commission of insurance experts and other leaders to make recommendations to Congress in short order. I look forward to working with my colleagues, Senators Nelson, Martinez, Landrieu, Lott, and others, on this effort. The issues before us today are critically important to millions of Americans. Recent analysis predicts that the 2007 Hurricane season will be unusually active with 17 possible named storms, 9 possible hurricanes, and a much higher than average likelihood of a major storm hitting U.S. shores. Today’s hearing is the first step toward looking at how we can assist in protecting Americans from natural disasters, and assuring them that when disaster strikes, they will be able to rebuild their homes, their businesses and their lives. I look forward to hearing from all of our witnesses today, and to working with Ranking Member Shelby and my colleagues on this important issue.