House begins looking at fixing national flood insurance program

McClatchy NewspapersMarch 11, 2011 

WASHINGTON — Lawmakers on Friday began considering how to reshape the beleaguered National Flood Insurance Program, which is $18 billion in the red.

A House Financial Services subcommittee heard from witnesses about a discussion-draft bill released by Rep. Judy Biggert, R-Ill., which would mean higher rates, more mitigation requirements, less development in flood-prone areas and no specific inclusion of wind coverage.

In the aftermath of 2005's Hurricane Katrina, wind damage was at the center of disputes between Gulf Coast residents and insurers, who often determined that damage was done by flooding — covered by the federal insurance program — and not by wind — which was covered by homeowner and business policies. The determination was bogus, complained residents, who said they received far lower payments under the flood insurance program.

The hearing's marquee witness, Craig Fugate, the head of the Federal Emergency Management Agency that oversees the flood insurance program, didn't appear because he was working on tsunami response after the earthquake in Japan.

"For many years, the NFIP has been — for lack of a better phrase — under water," said Biggert, chairman of the House Financial Services Committee's Subcommittee on Insurance, Housing and Community Opportunity.

"Due to inadequate management and insufficient funds, the NFIP borrowed billions from taxpayers following the 2005 Gulf Coast hurricanes and continues to be financially unstable."

The program is due to expire Sept. 30.

Rep. Steven Palazzo, R-Miss., who sat in on the hearing but is not a member of the committee, said that he wanted to work with the subcommittee on developing legislation and wanted to address "the high cost of wind insurance."

Palazzo said that "everything's on the table" in terms of ideas to provide coverage and to rehabilitate the program.

"We're looking at all our options and our goal is to craft legislation that can receive bipartisan support," he said.

House-passed legislation sponsored in 2007 by the Democrat whom Palazzo defeated last November to represent their Gulf Coast district, Rep. Gene Taylor, would have created a wind program in conjunction with the flood program, but the U.S. Senate rejected that approach.

The Obama administration also rejected it — creating anticipation for Friday's hearing on the position that Fugate would take on wind coverage and the future of the program. However, the administration failed to stake out a clear position Friday.

In Fugate's written statement, submitted before the earthquake, he said, "The most significant challenge is balancing the program's fiscal soundness. The NFIP must continue to offer affordable insurance that will properly identify those at risk and provide them adequate coverage, while reducing the need for taxpayer-financed disaster assistance. ... It is important to note, however, that the administration has not taken a position on the preferred course of action for NFIP reform."

Steven Ellis, vice president of Taxpayers for Common Sense, appeared on behalf of the SmarterSafer Coalition, a group pushing for putting the flood control program on an actuarial basis.

"Any reauthorization of the National Flood Insurance Program must make significant changes to put it on sounder financial footing, and help it climb out of its budgetary hole with more actuarially sound rates and accurate maps," said Ellis. "The discussion draft of reform legislation being circulated by the committee is a good start."

Ellis said that new legislation must address so-called repetitive loss properties, such as "one in Wilkinson, Mississippi, that has flooded 34 times since 1978 and received payments worth nearly 10 times the home's $70,000 value."

Still, the program has its supporters.

Terry Sullivan, a broker/realtor with the National Association of Realtors, said, "The NFIP was created in the first place because the private market failed. As a result, federal intervention was and continues to be justified today."

Rep. Emanuel Cleaver, D-Mo., said he was concerned about the program's $18 billion debt. "Something has to be done," he said. "The program simply can't continue."

Biggert replied, "We do need to move ahead. This is a draft discussion, but we really want to proceed."


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