Legislation expanding the National Flood Insurance Program tooffer coverage for wind damage will move to the House floor thisfall after winning approval from the House Financial ServicesCommittee.

The legislation–HR 3121–combined previously introduced floodreforms designed to increase the number of consumers in the programand reduce subsidies for some properties with a bill introducedearlier this year by Rep. Gene Taylor, D-Miss., to add the windcoverage option to the program.

The bill was approved by a vote of 38-29, falling largely alongparty lines. Republican opposition focused mainly on the inclusionof wind coverage, which, they argued, would increase taxpayerliability for a program already deep in debt.

Democrats countered by noting a provision that requires premiumsfor wind coverage to be actuarially sound. “The answer to, 'Howmuch is the bill going to cost?' is nothing,” said Rep. BarneyFrank, D-Mass., who chairs the committee.

Republicans countered, however, that it is unlikely theactuarial soundness mandate will survive political pressure tolower premiums. “We all know our constituents will be calling usfrom day one begging for lower rates and higher coverage,” saidRep. Tom Feeny, R-Fla.

Later in the hearing, Rep. Feeny said the committee would be“usurping” the private market if the wind coverage provision werepassed, and pointed to the experience of the Florida market sincethe state established its own Joint Underwriting Authority. Thatentity–the Citizens Property Insurance Corp.–is now the largestinsurer for wind coverage in the state, he noted.

Inevitably, Rep. Feeny argued, the question of offering lowerrates arises, and “no legislator in his right mind would voteagainst subsidizing,” he said. “It's happened in Florida, and we'regoing to do it again if we adopt this bill.”

Rep. Frank, however, said opponents would not have to look farto see a difference in this particular legislation. “I would giveone piece of evidence that Congress can say 'no,'” he said, “andthat's the rest of this bill.”

Other provisions in the bill would require the Federal EmergencyManagement Agency to revise the nation's flood maps by 2010 andphase out subsidies for structures built before the NFIP wasestablished that are not primary residences.

Insurance groups voiced opposition to the wind coverageprovision, echoing many of the same concerns voiced by members ofthe panel.

“Adding wind coverage to the National Flood Insurance Programwould create artificial subsidies, which would essentially raiserates for consumers in noncoastal areas who are not subject to thesame kind of wind-damage risks faced by coastal policyholders,”said Cliston Brown, director of federal affairs for the Propertyand Casualty Insurers Association of America.

He added that “it is important to note the NFIP is already $17.5billion in debt, so adding further exposure to the program is not agood idea. Furthermore, state residual market mechanisms providewind coverage where there is no market, and private insurersprovide wind coverage where there is a market.”

Responding to the committee's passage of the bill, AmericanInsurance Association President Marc Racicot said “we continue tobelieve this is not the right solution,” noting a Towers-Perrinstudy commissioned by the group that the impact on taxpayers couldbe as high as $200 billion.

“We had hoped the House Financial Services Committee would havechosen to pursue a proposed six-month study by the GovernmentAccountability Office, which would have provided in-depth analysisof adding wind coverage to the NFIP and provided a betterunderstanding of the real cost of adding wind coverage,” headded.

Industry groups have consistently supported many of the reformscontained in the bill. However, Justin Roth, senior federal affairsdirector for the National Association of Mutual InsuranceCompanies, noted the potential hazards of adding wind coveragecould effectively outweigh the other provisions.

“The NFIP is already in dire need of reforms, many of which areaddressed in the legislation,” he said. “But adding wind coverageto this program will only drive it further into debt, undoing anygood that the rest of the legislation could achieve.”

Concerns about the windstorm coverage's effect on the overallprogram spread beyond carriers.

Patricia Borowski, senior vice president of the NationalAssociation of Professional Insurance Agents, said her group was“pleased” the flood reforms were moving forward. “However,” sheadded, “we continue to be disappointed by, and oppose the House'sinclusion of Rep. Taylor's language attaching a multiperilcoverage.”

Although sympathizing with Rep. Taylor's goal of eliminating thewind-versus-water disputes that have arisen since HurricaneKatrina, Ms. Borowski said the approach taken by his legislation“is highly defective and will not resolve the fundamentalproblem.”

“It just adds more cost for insurance coverage for consumers andincreases the number of parties and coverage forms that could bedrawn into a claims coverage controversy,” she said, adding thatthe PIA is working with members of the Senate to resolve theproblem.

Reinsurers also sought to make the case against adding windcoverage to the NFIP. In a letter to Rep. Frank and other membersof the committee, Reinsurance Association of America PresidentFrank Nutter said adding a new type of coverage to the floodprogram is not a simple process.

“The underwriting and pricing of flood and wind risk arefundamentally different,” he said. “The federal government has noinstitutional knowledge in these areas, and it would be a dauntingundertaking for them to develop such technical expertise. Inaddition to updating flood maps, FEMA would also have to developwind maps for the entire United States. These tasks will onlyresult in the creation of greater federal bureaucracy.”

The issue of how adding wind coverage could affect the ongoingeffort to update flood maps was raised by members of the committeeas well, and an amendment offered by Rep. Emanuel Cleaver, D-Mo.,requiring FEMA to ensure that its mapping project be completed ontime, was adopted.

Rep. Frank said during the markup that the bill will not go tothe House floor before lawmakers leave for their August recess, andmay not be acted on until October.