WASHINGTON — The House Financial Services Committee voted Thursday to make a dramatic change in federal disaster insurance by expanding the national flood insurance program to cover wind damage.
The 38-29 vote, largely along party lines, was spurred by a pledge that House Speaker Nancy Pelosi, D-Calif., made after Hurricane Katrina to the coastal communities of Mississippi and Louisiana.
Pelosi will lead a bipartisan delegation to the region in mid-August before the second anniversary of the hurricane.
The vote was a personal victory for Rep. Gene Taylor, D-Miss., who lost his home in Katrina. Taylor has made it a personal crusade to explain to members that the current system creates a shortfall, with private insurance companies covering wind damage and the federal government covering water damage, resulting in a bias by insurers who administer the flood program to label all damage as "water."
"This really helps people in all coastal areas," said Taylor, noting that residents of North Carolina, Florida, Georgia, Alabama, Maine and New York would be able to purchase the expanded coverage, as well as in his home state of Mississippi. "Fifty percent of all Americans live in coastal areas."
Under the committee-approved bill, policyholders of the flood insurance program would be able to purchase wind policies as well. The policies wouldn't be available for those exclusively seeking wind coverage.
The multiple-peril residential policy limit would be set at $500,000 for the structure and $150,000 for contents. The bill increases the maximum coverage for flood insurance policies from $250,000 to $335,000 for residences.
House Financial Services Committee Chairman Barney Frank, D-Mass., said the expanded program would pay for itself through actuarially-determined premiums.
The legislation encountered stiff resistance from Republicans, however, who said it exposed the federal government to steep liability at a time when the insurance fund was essentially bankrupt. Insurers and consumer groups are also opposed to the expansion, warning that losses will dramatically increase as claims increase.
"I am not ready to support shifting the burden of wind damage to a plan that is nearly $18 billion in the red," said Rep. Spencer Bachus of Alabama, the committee's ranking Republican. The flood insurance program had to borrow $17.5 billion more than it took in because of Katrina and Hurricane Rita claims.
The legislation makes changes in the program, increases premiums, phases out subsidized rates paid by vacation-home owners and raises the borrowing authority.
Republican members offered several amendments stripping or delaying the wind provision from the bill, but they were defeated. Rep. Judy Biggert, R-Ill, who opposed the addition of wind coverage until Congress studies the issue further, complained that the controversy could sink the legislation.
"This is really adding a poison pill to the flood insurance reform bill," Biggert said.
Frank acknowledged that the bill was controversial, but said it would be ready for a floor vote in September. Taylor predicted that the bill would pass on the House floor and said he hoped that he get support from Minority Whip Trent Lott, R-Miss., who also lost his home to Katrina, in the Senate.
Democrats, led by Rep. Maxine Waters, D-Calif., chair of the panel's housing and community opportunity subcommittee, had recently attached the language from Taylor's bill on "multiple perils" to the flood insurance reauthorization bill.
But Rep. Jeb Hensarling, R-Texas, questioned whether the plan would stay budget-neutral.
"I know from experience that these designs don't always work out the way they're supposed to," he said. "I'm still not convinced the private insurance market won't work."
Rep. Mel Watt, D-N.C., countered that the post-Katrina insurance response "was a massive failure of the private sector. There are still people down there who haven't been paid."
The Flood Insurance Reform and Modernization Act of 2007
H.R. 3121 - key features.
_ Increases the amount the Federal Emergency Management Agency can raise policy rates in any given year from 10 percent to 15 percent.
_ Extends multiple-peril policies for wind damage where local governments agree to adopt and enforce building codes and standards designed to minimize wind damage.
_ Allows any community participating in the flood insurance program to opt into the multiple-peril plan. The multiple-peril residential policy limit is $500,000 for the structure and $150,000 for contents. Nonresidential properties could be covered to $1,000,000 for structure and $750,000 for contents and business interruption.
_ Increases the maximum coverage limits for flood insurance policies. New coverage limits would be $335,000 for residences, $135,000 for residential contents and $670,000 for businesses and churches.
_ Phases in actuarial rates for vacation homes and nonresidential properties beginning on Jan. 1, 2011.
Source: House Financial Services Committee