Quake Costs Spark Debate on Disaster Aid Reforms : Government: Bill in Congress would require insurers to pay into a fund to cover costs of catastrophes.

Lawmakers and a key Clinton Administration official agreed Wednesday that the federal government should take steps to reduce the enormous financial and human costs of natural disasters such as the Northridge earthquake.

Among the goals they endorsed are measures to prevent or limit potential damage, incentives for state and local governments to enact and enforce tough building codes, and insurance reforms to encourage homeowners to buy earthquake and flood coverage.

But they disagreed over a major proposal that seeks to accomplish these aims.

At a hearing on the Natural Disaster Protection Act of 1993, Jane Bullock, assistant to the director of the Federal Emergency Management Agency, said the proposal is not tough enough in some areas and could “become an open-ended obligation of the federal government” to help insurance companies.

Bullock told a House Public Works and Transportation subcommittee that FEMA is working with an interagency task force to develop an Administration plan to lower disaster costs and find alternative funding mechanisms.

Congress has grown increasingly skittish about paying for aid to disaster victims and communities by adding to the deficit. The House and Senate each appointed a bipartisan task force to study this issue after passage of the $8.6-billion California earthquake package this month.

The need for new policies is underscored by the increasing number and severity of federal disasters declared by the President--which jumped from 31 in 1989 to 45 in 1992. In the past six years, Congress has passed seven emergency aid bills in the wake of earthquakes, floods, hurricanes and other catastrophes. The total cost was more than $26 billion.

“We cannot afford to simply go on dealing with disasters the way we have in the past,” said Rep. Norman Y. Mineta (D-San Jose), chairman of the Public Works Committee and co-author of the disaster protection act.

The measure would provide incentives for states and municipalities to adopt uniform building codes and make funds available for enforcement.

If cities and states deemed disaster-prone fail to meet these standards within five years, they would face higher premiums and deductibles for earthquake insurance and would not receive federal mitigation funds.

The proposal would also make earthquake insurance part of the standard homeowners policy--with additional premiums based on regional risk. Insurance representatives say that this would spread the risk and reduce premiums. The average cost in California is projected to be $60--far below current rates. Only about 25% of Californians now have such coverage.

Finally, the bill would require insurance companies to contribute to a national disaster trust fund each year. If a disaster occurred, insurers would be able to draw from money they had paid into the fund. The industry projects that it would contribute $1 billion a year.

If the fund cannot cover disaster costs, the federal government would provide loans for the additional sums, which would be repaid by the insurance companies.

Bullock complained that Mineta’s bill includes “no compelling incentives or penalties for states and localities to enact mitigation measures prior to a disaster.” She added that the price of earthquake coverage “will decline significantly only if all those at risk must purchase coverage, yet the bill does not require that all homeowners subject to the earthquake risk purchase earthquake insurance.”

And she said the proposed insurance disaster fund includes “no limits to the federal outlay in the event of an earthquake or other natural disaster.” If a disaster occurred before the fund had accrued enough money, Bullock said, “federal outlays would almost certainly be required with a questionable likelihood of recovery.”

The reform measure is strongly supported by a coalition of insurance companies, realtors, lenders, state emergency managers, firefighters and homeowners groups.

But Mary Griffin, insurance counsel for Consumers Union, testified that although the bill includes some positive measures, it “focuses too much on protecting the insurance industry rather than preventing and protecting against losses from catastrophic natural disasters.”