"Two important issues before Congress are (1) securing the nation's capacity to prepare for, respond to, and recover/rebuild from natural catastrophe events, and (2) determining whether and how the federal government should intervene in catastrophe insurance markets. Since the devastating Gulf Coast hurricanes of 2004 and 2005, and a sequence of tornadoes, wildfires, earthquakes, Hurricanes Ike and Gustav, and the Midwestern floods in 2008, public attention has focused on: (1) the potential high cost of recovery and financing of natural disaster losses; (2) the supply and relatively narrow scope of private sector disaster insurance; (3) the extent to which Americans living in disaster-prone areas may be uninsured or underinsured; and (4) potential increases in federal outlays for disaster assistance. After Hurricane Katrina in 2005, the property insurance industry revisited catastrophe exposures with the help of recalibrated catastrophe models for Atlantic tropical storms. Based on this new analysis insurers arguably face greater potential losses in severe catastrophe events than was previously appreciated. This enhanced appreciation of risk has implications for property insurance capacity, underwriting, and pricing. Many insurers responded to recent hurricanes by requesting rate increases or refusing to renew hundreds of thousands of policies sold in areas along the Atlantic and Gulf Coasts. Where insurance became either too expensive or unavailable, homeowners and small business owners who could not otherwise obtain property insurance in the private markets turned to state-operated 'residual market facilities' that serve as insurers of last resort in these areas. As a result, many of these facilities have expanded."
CRS Report for Congress, RL34749