WASHINGTON (Reuters) — The Bush administration opposes setting up a federal catastrophic insurance programme to bolster private coverage, a senior White House adviser said yesterday amid debate over post-Katrina insurance reforms.Warning that a government backstop programme could distort private-sector insurance markets, Council of Economic Advisers chairman Edward Lazear told a Senate committee such a programme also could unfairly spread costs among taxpayers nation-wide.

“The administration opposes legislation to create a new federal programme to backstop catastrophe insurance,” Lazear told the Senate Banking Committee in a hearing on the matter.

Ever since three hurricanes in 2005 — Katrina, Rita and Wilma — killed hundreds and caused billions of dollars in damage along America’s southern coastline, lawmakers have been developing disaster insurance proposals to respond to raised premium rates and disputes over coverage.

Florida Republican Sen. Mel Martinez said at the hearing he supports a national catastrophe fund to “expand protection and availability of property insurance to owners”.

Amid disagreement among insurers, legislative approaches to a national programme vary from subsidising the purchase of private-sector insurance, providing insurance directly to homeowners, to putting government in the reinsurance business.

“We believe that none of these approaches would be helpful nor are they warranted,” Lazear said.

“A national catastrophic risk insurance plan would likely distort rates and undermine economic incentives to mitigate risk. It would force all taxpayers nation-wide to subsidise insurance rates for the benefit of a relatively small group of people in high-risk areas,” he said.

In 2006, both insurers and reinsurers raised premium rates to make up for huge losses in 2005. But 2006 was hurricane-free and there is now abundant capital in the insurance industry.

“The insurance industry is healthy and the private sector is well equipped to provide insurance for hurricanes and other natural catastrophes, but state regulators and the federal government must allow the private market to function,” Lazear said.