National catastrophe fund needed

Does this scenario seem familiar?

A major storm deals a devastating blow to an entire region, destroying homes, businesses, and infrastructure leaving thousands of citizens without electricity. Many are displaced and rely on the help of friends and family.

Local, state, and federal leaders work tirelessly to respond. Residents feel battered and frustrated. The initial response to the region’s needs focus on one effort — to make this catastrophe go away.

Just one year ago, it was the Northeast dealing with this scenario in the wake of Sandy, but the Southeast and Gulf Coast know this story all too well, most recently and devastatingly during Hurricane Katrina. While some may have written Katrina off as a regional problem, Sandy’s destruction in the Northeast proves that natural catastrophes are an American problem.

The physical damages were countless — in terms of lives lost, destroyed property, and displaced people. The financial costs were also significant, such as the costs of rebuilding and rising insurance premiums.

With more frequent and intense storms ahead of us, the inefficient system of building and rebuilding after a hurricane is not sustainable. Scientists tell us that another storm, one that will be much bigger than Sandy, is inevitable. The time to fortify our infrastructure is now.

Northeastern homeowners who may have balked at hurricane preparedness seminars a year ago now know they face enormous risks, on both physical and financial fronts. Yet not enough is being done to prepare and protect communities.

We need a more proactive solution to better prepare for the devastation from a catastrophe.

A federal bill proposing a better catastrophe management approach, the Homeowners and Taxpayers Protection Act of 2013, introduced by Rep. Albio Sires. D-N.J., builds upon legislation that passed the House of Representatives in 2007 by an overwhelming bipartisan vote of 258-155. Similar legislation was reintroduced and passed the House Financial Services Committee in 2010 with nearly 80 Congressional co-sponsors from 30 states.

A national catastrophe fund that is part of this comprehensive legislative solution can be thought of like a “catastrophe IRA.” A small portion of insurance industry premiums would prudently be set aside and built up — not for later retirement — for a speedy and well-resourced recovery from the mega-natural catastrophe whenever it hits. Because the fund is financed through private insurance premiums, it dramatically reduces the likelihood and extent of post-event taxpayer-financed bailouts.

This type of public-private partnership will actually strengthen the stability and capacity of the private sector and allow for more private companies to compete in the market, thus lowering the homeowner’s premium.

The Florida Hurricane Catastrophe Fund, which at the state level is similar in some ways to federal proposals, has built a $10 billion reserve — working exactly as planned to proactively build a backstop before the next hurricane strikes. Had the Florida Hurricane Catastrophe Fund not been available during the five hurricanes that ravaged Florida in 2004-2005, the homeowner insurance marketplace would have been devastated. Instead, insurers remain healthy and residents received the resources they needed to help recover from these storms.

The stakes are higher than ever, particularly in the current economy, and forecasters have shown that natural catastrophes are becoming both more frequent and more intense.

One year after Sandy, it is time to fortify our financial infrastructure before the next crisis. This program will provide more protection for homeowners, improved national preparedness, and better stewardship of the taxpayer’s dollar.

Admiral James Loy, co-chair of, is senior counselor at The Cohen Group and was commandant of the U.S. Coast Guard and deputy secretary of the Department of Homeland Security under President George W. Bush.

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