A bill that will reform the National Flood Insurance Program(NFIP) was recently passed by the House of Representatives.

H.R. 4973, the Flood Insurance Reform and Modernization Act of2006 (FIRM), accomplishes several goals in fixing the much-malignedprogram, which is funded by premiums and administered by insurancecompanies. Under the new legislation, the Federal EmergencyManagement Agency (FEMA) may borrow up to $25 billion from the U.S.Treasury to cover claims and expenses from the NFIP, an increase ofmore than 20 percent.

In addition to increasing the amount available for claims, thebill requires FEMA to phase in actuarially sound premium rates forflood insurance on commercial and non-primary residences, such assecond and vacation homes. It also enables FEMA to expand the floodinsurance program to include new types of insurance — such asadditional living expenses, business interruption, and additionalcontents coverage — not to mention higher dollar limits on theamount of coverage available.

The bill also would raise the cap on the average annual premiumincrease allowed for each risk category from 10 percent to 15percent. Additionally, FIRM increases the authorization ofappropriations for FEMA's flood-mitigation and flood-mappingprograms.

The Independent Insurance Agents & Brokers of America hailedthe passage of the bill, saying that, in particular, the increaseof the NFIP's borrowing authority is crucial because of thesituation encountered post-Katrina, where Congressional action toextend the monetary limit was needed in order to continue payingpolicyholder claims.

The National Association of Mutual Insurance Companies (NAMIC)also approved of the passage of FIRM. “It is important for Congressto address problems with the program soon, given that we arealready in a new hurricane season,” said Justin Roth, seniorfederal affairs director for NAMIC, in a statement. “This billprovides the framework for a federal flood insurance program thatwill be able to continue to serve policyholders in need of floodinsurance while protecting American taxpayers.”

The NFIP currently has approximately 4.7 million policies inforce, with a total exposure of nearly $800 billion.