House Advances Federal Flood Bill

June 29, 2006

The federal flood insurance program, still reeling from historic losses from Hurricane Katrina, may get a helping hand from Congress.

The House voted 416-4 Tuesday to phase out subsidies on some vacation homes and commercial property and raise premiums at a faster rate. The bill also increases the amount of coverage a property owner can buy and boosts fines for mortgage lenders who don’t tell customers they have to buy flood insurance.

The National Flood Insurance Program, a part of the Federal Emergency Management Agency, was established by Congress in 1968 to help homeowners, particularly those living in flood plains, obtain flood insurance that private insurers were unwilling to offer. Under the program, private insurers sell the government-subsidized policies.

The program covers some 4.9 million policyholders in 21,000 communities across the country that agree to carry out floodplain management and other steps to reduce flood damage.

The program was self-supporting for its first 37 years, but last year it was jolted by claims from some 225,000 property owners for $22 billion arising from hurricanes Katrina, Rita and others.

Since those storms Congress has had to step in three times to raise the NFIP’s borrowing power, from $1.5 billion a year ago to $20.8 billion, so the program could continue paying off claims.

The House-passed legislation would raise the borrowing authority to $25 billion. It also increases the premium rate increase ceiling for a given year from 10 percent to 15 percent.

It directs FEMA to review the nation’s flood maps, which help determine which property owners are required to buy flood insurance.

The House also accepted an amendment by Rep. Gene Taylor, D-Miss., calling for an investigation into Katrina damage claims. Taylor, whose district was devastated by the hurricane, said many insurers shifted the financial burden to the government by declaring that flooding, rather than wind, caused the destruction.

“Under this system, we have given the insurance industry the opportunity to stick the bill to the taxpayers every time there was any question. And I think they did,” he said.

The maximum flood insurance coverage for residential property is raised from $250,000 to $335,000, and coverage for contents per dwelling would go up from $100,000 to $135,000 under the bill.

Currently, a homeowner living outside a flood plain with the maximum coverage and a $500 deductible pays a premium of about $1,100 annually. The premium for the same coverage inside a flood plain is about $2,000. The bill adds to basic policies a nominal amount for living expenses following a flood.

The bill also includes an amendment co-written by Rep. Pete Stark, a Democrat from Fremont, Calif., that requires FEMA to notify homeowners of proposed changes to flood maps.

The Bush administration, in a statement, voiced support for the legislation but said it opposed increasing the scope of coverage. Total exposure of the program is approaching $1 trillion and it now faces a potential debt burden of $22 billion, it said. “Increasing the coverage amounts could encourage expensive development in high risk-areas,” it said.

The Senate Banking Committee approved similar legislation last May that would forgive the program’s debt. The House bill does not, instead directing FEMA to report twice a year on NFIP’s financial status.

In 2004 Congress passed legislation to protect the NFIP from property owners who file repeated claims for flood damage without relocating or floodproofing their homes.

The bill is H.R. 4973.

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