Legislation Would Help Guarantee Funding for California Families, Communities Affected by Earthquakes and Other Natural Disasters.

WASHINGTON, D.C. - Congresswoman Loretta Sanchez (CA-47) today introduced legislation that would help more Californians protect themselves against earthquakes and other natural disasters.  H.R. 4014, the Catastrophe Obligation Guarantee Act of 2009, would ensure that the state of California provides families and communities with sufficient insurance options - both public and private - to cover losses associated with natural disasters.  While introduced as a stand-alone bill, this legislation may also be incorporated into H.R. 2555, the Homeowner Defense Act, led by Rep. Ron Klein of Florida.

"Given the recent turmoil in our financial markets, I am concerned that the catastrophe insurance programs in California and other states will be unable to provide local communities with adequate financing following a major earthquake," said Rep. Sanchez.  "My bill will help ensure that California families are better protected against these and other disasters, and that credit is available and affordable for recovering communities. I look forward to working with Rep. Klein to ensure that as legislation on this issue moves forward, California's unique needs are addressed."

While many state and private catastrophic insurance programs are designed to cover insured losses from most natural disasters, a small but significant number of catastrophic events are likely to exceed the financing capacity of these programs.  The Catastrophic Obligation Guarantee Act would help ensure funding for recovery is available in these situations by allowing the Treasury to guarantee any debt incurred by state and private insurers.  The Treasury would then create a long-term reimbursement program for publicly managed insurers to pay back the government funds.

 "After a catastrophic earthquake or hurricane, the last thing a community needs is for a credit or funding freeze to halt its recovery efforts," said Rep. Sanchez.  "This bill will help ensure all insured losses are covered - whether or not the affected state's public or private insurance programs have the necessary funds at the time of the disaster."

Currently, only 12% of California's insured households also have earthquake insurance.  The state's earthquake insurance program, the California Earthquake Authority (CEA), is responsible for covering 70% of this market.  Nearly 40% of CEA's premium revenue is paid out as reinsurance premiums - about $200 million per year.  This capital structure has made catastrophic insurance unaffordable for many families and communities.

The Catastrophe Obligation Guarantee Act of 2009 would help alleviate those costs and create nearly $1 billion dollars in savings for the CEA over 5 years. The CEA, in turn, will pass those savings on to policyholders in the form of new and improved policy options and significantly reduced premium rates and policy deductibles.  Because the savings are found within the system, the CEA will remain financially strong at zero cost to taxpayers.

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