Homeowners' Defense Act: Affordable Insurance or 'Beach House Bailout'?

Banks aren't the only ones that depend on taxpayer bailouts. Every time disaster strikes the government picks up the tab. Losses after Katrina totaled $90 billion, with only $45 billion covered by insurance. The government ended up spending almost $10 billion on homeowners who were uninsured or under-insured.

Yet, property and flood insurance rates are rising dramatically, even as some insurers scale back their coverage. For homeowners, that can make it harder to afford their homes, and more difficult to sell them.

With that in mind, the House Committee on Financial Services held a hearing on March 10 to consider "The Homeowners' Defense Act," a bill that would allow states to pool risk to pay for natural calamities. These pools would be used to build up reserves in advance for major catastrophic events.

The idea is that with a larger, national pool, homeowner's insurance will be cheaper for everyone. But the bill is controversial, with critics calling it a "beach house bailout" and environmentalists saying it will encourage development in vulnerable coastal areas.