WASHINGTON — The House of Representatives on Tuesday overwhelmingly approved a five-year reauthorization of the federal flood insurance program, sending a message that lawmakers want the program, which has been struggling since Hurricane Katrina in 2005, to be revamped and reformed to deal with ongoing disasters from floods to hurricanes.
The National Federal Insurance Program, as the program is formally known, is scheduled to expire Sept. 30 and is nearly $18 billion in debt.
The House bill, passed 406-22, would make sweeping changes in the current structure: It would set actuarially sound premiums, reduce current rate subsidies, improve flood area mapping, call for the Federal Emergency Management Agency to study incorporating private insurance and increase coverage for homes and commercial buildings. FEMA administers the program.
"Homeowners and communities that rely on the NFIP are the clearest winners in today's vote, but with these reforms, the taxpayers also will finally get the protection they deserve," said Rep. Judy Biggert, R-Ill., the bill's author, who chairs the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity.
"As the first significant reform to the program in nearly a decade, this bill will phase out taxpayer-subsidized rates and restore the integrity of the flood mapping system," she said. "It also eliminates barriers to the development of a private flood insurance market, and helps take taxpayers out of the risk business."
Since 2008, Congress has passed 10 short-term extensions of the NFIP, and the program actually has been allowed to lapse four times. According to the National Association of Realtors, during a June 2010 lapse alone, as many as 1,400 real estate transactions per day were delayed, affecting real estate markets.
The bill does not directly address wind damage, which has roiled the Gulf Coast since Katrina, when residents were left fighting insurers over "wind vs. water" claims. Insurers denied many claims for wind damage, saying that the damage was caused by water — covered by the federal flood program.
Rep. Steven Palazzo, R-Miss., authored an amendment, approved by the House, which would allow claimants access to engineering reports or other data used to determine whether property damage from the FEMA administrator or other flood insurance providers.
House Financial Services Committee Chairman Spencer Bachus, R-Ala., said, "This reform bill protects taxpayers by eliminating federal subsidies and reducing the program's need to borrow additional funds from the Treasury. It also helps bring certainty to the housing market by ensuring potential home buyers can obtain flood insurance they need to get financing to purchase their home."
Bachus took a shot at State Farm Insurance for "dumping" 800,000 policies on the federal program when it got out of the flood insurance business and authored an amendment requiring FEMA to reduce the number of flood insurance policies it directly manages. The House passed the amendment on a voice vote.
The legislation would raise the annual limit on premium increases from 10 percent to 20 percent and would authorize FEMA one year after enactment to phase in rates that are calculated to reflect full risk. Currently, many property owners pay discounted rates that FEMA has incorporated for years to encourage coverage and to reward communities that take steps to mitigate flood or storm damage.
The bill sets minimum deductibles of $1,000 for properties with full-risk rates, and $2,000 for properties with discounted rates. Beginning next year, maximum coverage limits — currently $250,000 for residential structures, $100,000 for residential contents and $500,000 for commercial properties, including structures and contents — would be indexed for inflation.
"Today's vote represents a major step in bringing fiscal responsibility to the National Flood Insurance Program," said Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies.
"For the NFIP to survive, it must be able to price coverage to reflect the risk of flooding facing a property, and cut the losses from those properties that will not undertake any mitigation efforts despite repeated flooding," Grande said.
The Senate must still act on a bill.
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