The Senate Banking Committee Thursday unanimously approvedlegislation reforming the National Flood Insurance Program that theinsurance industry said it can support.

The bill which passed through the committee with a 20-0 vote, isfar different than one that was approved by the House FinancialServices Committee in March, now awaiting House floor action.

Introducing the bill Thursday, Sen. Richard Shelby, R-Ala.,chairman of the Senate Banking Committee, said, “The goal…is tostrengthen the [flood insurance] program by eliminating subsidieson vacation homes, businesses and severe repetitive loss propertiestoday, and to lay a foundation for the elimination of all subsidiesin the future.”

In addition, he warned, “The next fifteen months will also becritical to determine if FEMA is up to the task of administeringthis program, or if this program should be reorganized into anotherfederal agency.”

The bill won't call for reducing company or agent commissions.It also calls for greater increases in premiums and programtightening than the House bill, and will therefore theoreticallyincrease industry revenues from the program.

The bill creates a mandatory reserve fund “to provide additionalfunding to help pay future claims without further need to seekcontribution from the U.S. taxpayer,” Sen. Shelby said.

The insurance industry drafted a joint letter supporting thebill soon after the committee print was revealed to Sen. Shelbylast Monday, and industry trade groups also issued separatestatements Thursday voicing support.

During a March hearing, members of the Senate Banking Committeecalled into question industry commissions and implied the Senatebill might seek to cut them as a means of reducing the program'sdebt. However, the bipartisan bill unveiled last Monday backed offfrom that, calling only for a Government Accountability Officestudy of the issue.

According to NFIP officials, industry commissions range from 30to 32 basis points (0.3-to-0.32 percent), and are determinedannually. Of that, agents get 15 basis points, and 2 to 3 basispoints are used to pay state premium taxes. Companies get therest.

The Senate bill is different than the companion House billbecause it will require more policyholders to pay fair-market ratesand more homeowners to participate in the program than called forin the House bill.

The bill will also require more modern flood maps and increasepenalties for lenders who violate its requirements.

The House bill was approved by the House Financial ServicesCommittee on Mar. 16 and is awaiting floor action.

Known as the “Flood Insurance Reform and Modernization Act of2006,” the Senate bill would require stricter compliance withmandatory insurance coverage and increased participation in theprogram.

The bill may run into opposition on the Senate floor frommembers in coastal states, such as Florida and North Carolina,because the cost to homeowners in coastal areas will be higher thanfor those in less-exposed jurisdictions.

The Shelby bill mirrors the House bill in that it will requirepolicyholders with vacation homes to pay fair-market rates fortheir premiums. But the Senate bill toughens the House bill byending subsidies for structures that have suffered severerepetitive losses due to flood claims, property that has incurreddamage that exceeds its current fair market value, and any propertythat has sustained substantial damage exceeding 50 percent of itsfair market value or improvements exceeding 30 percent of its fairmarket value.

In their joint letter, the trade groups voiced their “strongsupport” for the Shelby bill. “The devastation from HurricanesKatrina, Rita and Wilma exposed weaknesses in the NFIP and the needfor reforms to put it on a more stable financial footing,” theletter said.

The letter was signed by the American Insurance Association, theIndependent Insurance Agents and Brokers of America, the NationalAssociation of Mutual Insurance Companies, the Property andCasualty Insurance Association of America, and the ProfessionalInsurance Agents of America.