Members of Congress used a hearing last week designed to examine the housing market's ability to withstand a major catastrophe, as well as whether a national catastrophe pool should be established, to vent their frustrations at insurance industry representatives and others in the debate.

Although ostensibly aimed specifically at the housing market, the hearing of the House Financial Services Subcommittee on Housing was more broadly aimed at the overall homeowners insurance market, and how carriers have and could respond to a major catastrophe such as Hurricane Katrina.

Perhaps the most vocal critic of the insurance industry at the hearing was Rep. Gene Taylor, D-Miss., who was allowed to take part although he is not a member of the Financial Services Committee.

Rep. Taylor sharply questioned the representatives of the industry present--specifically AIA President Marc Racicot. Rep. Taylor took issue with the question of wind-vs.-water damage that have left many Katrina policyholders without coverage, or with less than they expected.

He noted--as he did a day earlier in a debate on flood insurance reform legislation--his concerns that insurance companies are forcing the government to pay for claims in the Gulf Coast region by contending damages were due to flooding despite evidence that the problem was wind.

During the flood insurance reform debate, Rep. Taylor noted that he, along with former Senate Majority Leader Trent Lott, R-Miss., and Federal Judge Lou Guirola, had filed suit against their insurers over Katrina claims despite what he noted has been consistent support for tort reform.

That historical allies of the industry have turned to the courts to receive compensation for their losses during Katrina, he argued, shows the depth of the problem for insurance companies.

"When a former United States senator and majority leader, a federal judge and a sitting congressman feel they have to go to court to get justice, the problem is not with the individual. It's with your industry," he told Mr. Racicot, a former governor.

In response, Mr. Racicot argued that the industry is heavily regulated, and that all of the policies and language Rep. Taylor and others are disputing was approved by the state's insurance commissioner.

Mr. Racicot also argued that the legitimacy of American business rests on the sanctity of the contract, and that allowing the courts to change that language retroactively would have a serious effect.

Furthermore, he added, contract language should apply to all people regardless of their stature. "Whether you're a congressman or a painter, it doesn't matter," he said.

Rep. Debbie Wasserman-Schultz, D-Fla.--who is not a member of the subcommittee but does sit on the full Financial Services Committee--also took issue with one of the witnesses. She sharply questioned the Consumer Federation of America's legislative director, Travis Plunkett, about why his group does not support legislation proposed by Rep. Ginny Brown-Waite, R-Fla., establishing a national catastrophe pool.

Rep. Wasserman-Shultz noted that she had been elected to the Florida state legislature in 1992, when Hurricane Andrew devastated the state, and that a catastrophe pool had proved invaluable in saving the state's homeowners insurance market.

"We wouldn't have any property and casualty insurance companies operating within our state if we hadn't adopted a catastrophe fund," she said, adding that she has been a staunch ally of the CFA and has received virtually every award offered by the group and its Florida affiliate.

Mr. Plunkett said the CFA believes the national pool would place an unfair burden on consumers, either as taxpayers or policyholders. Rep. Wasserman-Schultz questioned that thinking: "You don't think the consumers are on the hook now?"

Others at the hearing also discussed the proposed solutions, either to support Rep. Brown-Waite's legislation or offer their own ideas.

Ernie Csiszar, president and chief executive officer of the Property and Casualty Insurers Association of America--as well as a former president of the National Association of Insurance Commissioners--offered a slightly different proposal than Rep. Brown-Waite, but one that shared the same state/federal approach.

"We recognize the value of the state catastrophe fund," Mr. Csiszar said, adding, however, that the federal government can and should have a role to ensure added security in the wake of a major catastrophe.

Under the PCI proposal, a federal credit would be made available to states that have established catastrophe funds to serve as a backstop after a major event. That credit, Mr. Csiszar said, would then be repaid by the state over time.

Meanwhile, the Reinsurance Association of America's vice president for state relations, Dennis C. Burke, testified that a federal natural disaster reinsurance fund is not needed and urged Congress not to interfere with the private reinsurance market.

"The RAA does not believe market conditions warrant the creation of a federal program," he said. "Capital markets responded strongly after the [2005] hurricanes by investing $24 billion in reinsurers. If policymakers follow competitive, free-market principles, a federal natural disaster reinsurance fund is unnecessary."

He added that "there is no assurance that a federal reinsurance program will result in more availability of homeowners insurance."

Mr. Burke said that state catastrophe funds violate a fundamental tenet of insurance--spreading of risk. He said private reinsurance spreads risk globally, while a state catastrophe fund concentrates risk in one jurisdiction, shifting financial risk from insurers to policyholders and taxpayers.

Mr. Burke also said RAA believes the removal of regulatory and price constraints should be a top priority of public policymakers, enabling the private insurance market to willingly insure more risk.

A witness for the National Association of Mutual Insurance Companies said Congress can play a constructive role in assisting the private market to ensure that the nation's homeowners are prepared for the next major natural catastrophe.

Tim Russell, president of Baldwin Mutual Insurance Company and mayor of Foley, Ala., cited his unique perspective on the devastation caused by catastrophes such as Hurricanes Katrina and Ivan--the worst natural disasters in Alabama history--and the challenges that face insurers and government policymakers in preparing for and managing large-scale natural disasters.

"I wish I could sit here before this committee and say that the worst is behind us," Mr. Russell said. "However, according to hurricane forecasters, the increases we have seen in hurricane frequency and severity are expected to continue for at least another decade."

Mr. Russell cited a special task force formed by NAMIC in December 2005, which identified and analyzed "the critical issues that NAMIC believes policymakers should consider as they move forward."

After months of deliberations, the task force formulated "four overarching principles that will serve to guide NAMIC members and staff as the natural disaster debate evolves." They are:

1. Market freedom and competitive pricing will lead to innovation in developing solutions to problems relating to disaster insurance and mitigation.

2. Competitive pricing and risk-based underwriting are essential to developing and maintaining a viable disaster insurance market.

3. Mitigation must be an indispensable aspect of any disaster risk management and insurance initiatives.

4. The National Flood Insurance Program should be maintained, but must be reformed.

Alex Soto, president-elect of the Independent Insurance Agents and Brokers of America, testified that his group "believes that both states and the federal government have roles to play, but that there is a need for a federal solution to be in place before the events happen--to have a clear, well-structured mechanism that encourages the private sector to handle as much of the risk as possible, and only consider a federal role as a last resort upon private marketplace failure."

He added that "we believe such a structure will protect both consumers and taxpayers living in all areas across the country--especially when history has proven that more tax dollars are going to be spent on disaster assistance without a structure to encourage the private sector to take on additional risk."

Mr. Soto, president of Miami-based InSource Inc., noted IIABA's support for H.R. 846, the Homeowners' Insurance Availability Act, introduced in 2005 by Rep. Brown-Waite. That bill would allow private insurers to purchase, at auction, reinsurance contracts directly from the U.S. Treasury to cover natural disasters that are equal to, or greater than, a 1-in-100-year event.

"We believe this is a strong proposal because it will encourage more companies to enter at-risk markets, thus increasing availability and market stability, while limiting federal involvement to only the most devastating catastrophes," he said.