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White House rejects calls for national catastrophic insurance

WASHINGTON—The White House on Wednesday emphatically rejected calls for national catastrophe insurance as Florida Gov. Charlie Crist and the state's senators implored Congress for federal help to cap the spiraling cost of hurricane insurance.

Crist, a Republican and the lead witness at a Senate Banking Committee hearing that looked at ways to address rising insurance costs, said he and other Southern governors backed a national fund to spread the risk for recovering from catastrophic natural disasters across the country, "thus strengthening our insurance markets."

"Traditional insurance-market mechanisms are not adequately managing catastrophic risk, and the financial strain on customers can be felt from coast to coast," Crist said, noting that Hurricane Katrina showed widespread vulnerabilities.

Various factions of the insurance industry oppose a government-run plan, and one of President Bush's top economic advisers told lawmakers that the administration also is against it.

Echoing some congressional critics, Edward Lazear, the chairman of the Council of Economic Advisers, said a federal program would unfairly penalize taxpayers in areas that weren't prone to disasters and could lead to more development in hurricane-prone areas because homeowners wouldn't "bear the full expected costs of damages occurred."

A "federal backstop," Lazear said, would mean that taxpayers nationwide would subsidize insurance rates "for the benefit of a relatively small group of people in high-risk areas."

Crist, though, flanked at the witness table by Florida Sens. Mel Martinez, a Republican, and Bill Nelson, a Democrat, said U.S. taxpayers already paid—after the fact—for major disasters. He noted that the federal government has spent $110 billion to help the Gulf Coast recover from Hurricane Katrina. He suggested that it would be better for the government to put away the money upfront, enabling it to earn interest, tax free.

"Our nation's response to natural disasters is one of defense," Crist said. "I ask you to refocus our national effort away from large-scale funded recovery after a disaster to proactive prevention."

Martinez and Nelson earlier suggested that their best shot at a national plan may be the creation of a commission to study the issue. The Banking Committee chairman, Sen. Christopher Dodd, D-Conn., backed that idea Wednesday, saying he wants to move legislation within a few weeks.

Dodd, who's seeking the Democratic nomination for president, stopped short of endorsing a national fund but said he supported a number of other steps, including tax breaks for homeowners faced with skyrocketing insurance premiums and loans or grants for property owners to bolster their buildings against hurricanes.

Sen. Richard Shelby of Alabama, the top Republican on the committee, underscored the sentiment of many noncoastal-area lawmakers, asking several times why U.S. taxpayers should subsidize "million-dollar vacation homes."

But Crist accused the insurance industry of enjoying record profits while charging exorbitant rates in states such as Florida.

"They've been going after our people, let's face it," Crist told reporters after testifying. "I'm for people making a profit, but I am not for profiteering on the backs of my citizens."

Coastal state lawmakers have championed a federal backstop for years, but opposition from the insurance industry and states that aren't so vulnerable to catastrophic events have blocked it.

Lawmakers have suggested, however, that the legislation has a better chance in a post-Katrina world. The National Association of Insurance Commissioners, which represents state insurance commissioners, has endorsed the measure.

Martinez and Crist brushed off the opposition from the White House, and, under questioning, Lazear said the administration was unlikely to oppose creating a commission to study the issue.

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(c) 2007, McClatchy-Tribune Information Services.

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