The House Financial Services Committee voted last week to approve legislation that would increase the borrowing authority for the National Flood Insurance Program, as well as implement several reforms.

The committee passed the bill by a voice vote of 44-to-10 after rejecting a proposed amendment by Rep. Jeb Hensearling, R-Texas, which would have immediately ended the subsidized rates paid for flood coverage by homeowners whose property predates the Flood Insurance Rate Maps. The current bill only eliminates the subsidies for nonprimary residences and vacation homes over time.

In debating the amendment, Rep. Richard Baker, R-La., said that gradually eliminating the subsidies in the future “might be something I could understand as defensible,” but he was unable to support anything that would put a greater, more immediate burden on homeowners hit by Hurricane Katrina. “The underlying bill is already a big jump for me,” he said.

Under the bill, the Federal Emergency Management Agency's borrowing authority for the NFIP would be increased to $25 billion to cover losses in the wake of Hurricanes Katrina and Rita.

The increased borrowing authority had been deemed a necessity for the NFIP, as well as insurers involved in the “Write Your Own” coverage aspects of the program.

“This new increase is needed immediately as the NFIP will soon run out of money–again–to pay its claims that are owed to those homeowners who have paid for flood insurance,” said David Winston, senior vice president of federal affairs for the National Association of Mutual Insurance Companies.

“Without an increase in borrowing authority, the NFIP would have to instruct Write-Your-Own companies to stop paying claims, as it did late last year,” he added.

Rep. Hensearling, a fiscal conservative, had also proposed an amendment that would have only raised the borrowing authority to $20.775 billion–less than the $23 billion FEMA has said it will need to cover its Katrina and Wilma-related losses. After the vote on his other amendment, he withdrew his request for a recorded vote on the reduced borrowing authority, and it was rejected by a voice vote.

Additionally, the legislation makes significant changes to the NFIP designed to increase the amount of money taken in by the program and the number of homeowners who purchase flood coverage.

o Coverage limits would be increased to $325,000 for a home, $670,000 for a nonresidential building and up to $135,000 for the contents of a structure.

o Homeowners and businesses would be able to buy extra coverage for losses to basement improvements in a home or for business interruption.

“We had a number of members in the Gulf region working out of their homes or storefronts because their offices had been destroyed,” said Charles Symington, senior vice president of government affairs and federal relations for the Independent Insurance Agents and Brokers of America. “Business interruption coverage is crucial to small businesses and to our members.”

In addition, the bill gives the NFIP an increased ability to raise rates–by as much as 15 percent annually, as opposed to the current cap of 10 percent.

Another amendment, proposed by Rep. Debbie Wasserman Schultz, D-Fla., and agreed to by a voice vote, would require the NFIP to participate in a state's nonbinding mediation program if requested to do so by the state's insurance commissioner.

Special Reports /

House Committee Approves Flood Insurance Plan Reforms

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