The US Democratic Party is backing a bill aimed at nationalising part of the insurance business that covers major storm-damage claims, which could have a big knock-on effect on many private insurers in Bermuda.

The bill, which has passed the House of Representatives and is backed by the largest writers of property insurance in the US, Allstate Corp. and State Farm Mutual Automobile Insurance Co., as well as Florida lawmakers, would see taxpayers in all 50 states shelling out for a reinsurance programme which would backstop the giant insurers in the event of a disaster, said a report in the Wall Street Journal.

The programme could save homeowners about $500 each in annual premiums in Florida alone, according to advocacy group ProtectingAmerica.org, which is backed by Allstate and State Farm.

But Brad Kading, president of the Association of Bermuda Insurers and Reinsurers, reckons the programme has the potential to "squeeze out" a big chunk of the private reinsurance market.

He also believes, along with a number of environmentalists and other critics, such as the American Insurance Association, that lower premiums and a lack of incentives for homeowners to protect their properties by creating such a fund could lead to irresponsible coastal development.

Meanwhile, the scheme may also shift the cost to those taxpayers in states with fewer natural disaster risks.

The legislation passed the House with bipartisan support by 258 to 155 late last year, despite a presidential veto threat, with Democratic presidential candidates Senators Hillary Clinton and Barack Obama both lending their support to the plan on visits to Florida. The senate is yet to take action on the bill.

However, Republican counterpart Senator John McCain is resisting calls to back the programme, with his policy director quoted as saying the only state to benefit from it would be Florida in its current state.

The big winners from the proposed programme would be the coastal states, especially Florida, where more than half of the US's hurricane risk is centred and property insurance rates are among the highest in the country.

Florida also has a struggling state reinsurance fund, the only one of its kind, that would be assisted by such a federal programme. Having been set up in 1992 in the wake of Hurricane Andrew, the fund has lowered insurance costs for the state's residents, but would be stretched if a big hurricane occured this year.

The plan is similar to the National Flood Insurance Programme, which has come under fire for encouraging building in risky floodplains, but ProtectingAmerica has disputed that the new programme would encourage such development.

The fund would work by collecting premiums from companies like Allstate, who would stand to benefit because they would be paying out less than in the private reinsurance market, with the savings being passed on to homeowners. Federal loans and state-backed reinsurance, meanwhile, could step in if a severe disaster struck.