Insurers and other interest groups are divided about new US legislation designed to protect residents from natural disasters.

The Taxpayer Protection Bill says that the US Government has provided funding when the private industry or states have not been able to manage disaster losses, but these costs have been borne by all taxpayers and create a disincentive to prepare for catastrophes.

Recent legislation has capped disaster relief funding. Future catastrophes could exceed the limited capacity in the private market to cover claims, meaning communities must be better prepared for limited federal intervention.

The bill says catastrophes have a disproportionate impact on the poor and middle class, and

proposes a public-private partnership approach to deal with catastrophes.

It says a privately funded backstop can provide more protection at a lower cost to consumers, and these savings can be used to encourage better mitigation.

This can be structured to protect taxpayers from bailouts, spread risk more broadly and enable private insurers to price catastrophe insurance more efficiently and with less risk of insolvency, according to the bill.

It says private reinsurers could continue to cover insurers and could participate in providing capacity to the financial backstop.

While some catastrophe experts, disaster recovery groups, insurers and emergency management officials support the bill, a group of insurers, reinsurers, environmental groups and taxpayer advocates known as the Smarter Safer Coalition have called on Congress not to vote for it.

The group says that if the bill becomes law the US Government would continue to pay for immediate disaster relief and might also have to pay property rebuilding costs which are currently covered by private insurance.

“Homeowner insurance in risky areas would be nationalised through a government backstop,” the coalition says in a letter to members of Congress.

The proposal would encourage development in regions most prone to natural disaster and cost the Government billions of dollars in an already difficult fiscal environment.