State funding vs private market solutions

The Homeowners Defense Act (H.R. 3355) legislation currently before the US Senate is an attempt by legislators to provide effective federal risk management and financial solution to the devastation caused by natural catastrophe events in the US coastal regions. The legislation is a response to the natural catastrophe events of 2004-2005 in the US and to the related developments in insurance and reinsurance markets. All this activity, while galvanising the interested communities in both the public and private sectors, at the same time raised a number of questions about the appropriate relationship of government and the private sector in terms of responding to the problem. In his recent testimony on the legislation to The Subcommittee On Housing And Community Opportunity And The Subcommittee On Capital Markets, Franklin W. Nutter , president of the Reinsurance Association of America (RAA), explained that the RAA does not support the legislation because it has significant concerns that provisions of the legislation would unnecessarily crowd out the private reinsurance market. Below is an edited extract from Mr Nutter’s testimony.