Arguing that "there is a limit to what a single state can do," Florida Insurance Commissioner Kevin McCarty and other advocates for a federal role in natural catastrophe insurance urged congressional lawmakers at a Florida hearing last week to help local governments brace for the financial fallout of a natural disaster.

The regulator and other cat fund supporters delivered their remarks during a field session of the House Financial Services Subcommittee on Investigations and Oversight in West Palm Beach, Fla., in which Sunshine State residents and officials detailed the troubles in the Florida homeowners' insurance market in the past few years.

Additionally, they offered support for legislation authored by Reps. Ron Klein, D-Fla., and Tim Mahoney, D-Fla., which would establish a national catastrophe fund to back state property insurance facilities, allow states to offer catastrophe bonds, and provide loans for mitigation programs.

That bill--H.R. 3355, the Homeowners Defense Act--has already been passed by the House and is awaiting Senate action.

"There is a limit to what a single state can do," Commissioner McCarty testified. "Florida wants a vibrant private insurance market, but private insurers are insisting on a guarantee of a healthy profit-margin to stay in this market."

Mr. McCarty noted further that companies admitted during state Senate committee hearings that they attempted to load profits of more than 25 percent into recent rate filings, as well as use "near-term" computer models to project hurricane losses that even the scientists who developed them have acknowledged are not as predictive as long-term models.

"In some cases, the use of these near-term models dramatically increased the perceived need for premium," Mr. McCarty said. "Unfortunately for Floridians, an increase in premium attributed to this additional risk is expected to be passed to policyholders."

Thomas Wenham, mayor of the Village of Wellington, Fla., said his municipality has seen "skyrocketing insurance costs" that have more than doubled from roughly $357,000 in 2005/2006 to $719,000 for 2006/2007, and risen from roughly $1,000 for the average home in 2000 to more than $5,000 currently.

"Wellington was fortunate that we are a relatively young community, and most of the construction within our village was subject to more stringent building codes," he said. "Because of that, we wonder why our insurance rates have gone so high."

But while much of the focus was on the state of Florida and its insurance market, Alex Soto, immediate past president of the Independent Insurance Agents and Brokers of America, pointed out that the entire country faces potential natural catastrophes and the related insurance problems.

"The plain truth is that some natural disasters will exceed the financial capacity of state catastrophe funds," said Mr. Soto, who is president of InSource, a Miami-based agency. "Only a program that is national in scope will be able to generate enough capacity to cover the most devastating events."

James Loy, co-chair of ProtectingAmerica.org, did not appear at the hearing, but said afterward that many of the problems discussed during the session would see immediate relief once H.R. 3355 the bill was enacted.

"Florida's homeowners could immediately see $2.4 billion worth of premium savings if the bill were enacted," he said. "That amounts to $376 for every homeowner in Florida. In light of the testimony that the committee heard today, there is an urgent need for Senate action on this critical measure."

Property Casualty Insurers Association of America President David Sampson said his group "supports several pending congressional bills" that would encourage solutions to the property market crunch, including tax credits, mitigation, and the strengthening of building codes and their enforcement.

"We also support the concept of a federal liquidity loan facility to backstop qualified state catastrophe funds, provided the legislation includes market freedoms and does not include artificial market restrictions that discourage the inflow of new capital," he added.

However, Dennis Kelly, a representative for the American Insurance Association, cautioned against what the AIA sees as pitting the private sector against the government under the bill.

"The creation of catastrophe funds and other 'big government' solutions would supplant the role of the private insurance system, would undermine efforts to reduce risk and encourage personal responsibility, and would come at an enormous expense to America's taxpayers," he said.

"The federal government should be exploring ways to help expand the capacity of the private market rather than step in and displace it," he added.