WASHINGTON–The Senate passed legislation today extending and reforming the National Flood Insurance Program, setting up talks with the House on final compromise legislation.

The overwhelming 92-6 vote on the Flood Insurance Reform and Modernization Act of 2008 extends the program until 2013 and pays off the $17.5 billion debt the program ran up in settling claims from Hurricanes Katrina and Rita in 2005.

It would extend a program whose authorization expires Sept. 30.

Meanwhile, Minnesota Gov. Tim Pawlenty signed a bill into law yesterday requiring insurance companies to annually tell their policyholders if their policies include flood coverage.

“This new law will help consumers by giving them more information about their insurance coverage options,” Gov. Pawlenty said in signing the bill.

The Senate's bill, besides forgiving the program's debt, creates a nonpartisan commission to examine the proper approach to managing catastrophic risk. Neither provision is included in the House version.

And, in a provision opposed by the insurance industry, the bill establishes an “ombudsman” within the Federal Emergency Management Agency whose job it will be to ensure that the 93 insurers who provide flood coverage don't make the flood program pay for wind claims the insurers should pay for. The House bill does not include such a provision.

But in a key victory for the industry, the Senate, by a strong 73-19 vote, rejected an amendment that would have added wind damage coverage to the program–as does the House bill, H.R. 3121.

The senators who voted against the bill included both senators from Arkansas and Louisiana, as well as senators from Florida and Oklahoma.

The Senate bill also:

o Requires people protected by dams or levees to buy flood insurance after floodplain mapping is completed.

o Allows FEMA to raise rates by 15 percent annually, up from 10 percent, and increases minimum deductibles.

o Gradually ends subsidies now available to some second homes, commercial properties and properties that experience repeated losses.

o Requires FEMA to adjust rates to accurately reflect risk upon completion of flood insurance rate maps.

Marc Racicot, president of the American Insurance Association, said the Senate chose the more “thoughtful path” in its version of the legislation because forgiving the NFIP's debt puts the program back “on a sound financial footing.”

“The Senate also showed good judgment by not adding wind coverage to the NFIP…” he said.

The Property Casualty Insurers Association of America (PCI) voiced strong support for the Senate bill but criticized the ombudsman provision.

“There are already multiple options available for policyholders to address any concerns they may have with the claims-payment process,” said David Sampson, PCI president and CEO.

“We believe that the creation of an overseer is redundant,” Mr. Sampson said. “Consumers already have five options for redress. This would be a sixth. The amendment creates a special investigator whose domain would include fewer than 100 companies who administer this program.”

Mr. Sampson said that with fewer than 100 write-your-own companies, “it would not take long for everyone selling these policies to come under the federal microscope, regardless of whether added scrutiny is needed or not. We will work toward the modification of that language in the final bill.”

The Senate bill “will go a long way” toward alleviating some of the concerns of residents in flood-prone areas, according to Carl Parks, senior vice president for government affairs at the National Association of Mutual Insurance Companies.

“These much-needed reforms will provide peace of mind to the millions of Americans who rely on the NFIP by ensuring it will have money available to pay flood claims when losses occur,” he added.