Washington–A consumer group is criticizing legislation introduced this week that would provide retroactive flood insurance for homeowners wiped out by recent hurricanes on the Gulf Coast, as harmful to the existing program.
In carefully measured remarks, J. Robert Hunter, director of insurance for the Consumer Federation of America, said that while "well-intended," the legislation, if enacted, would "undermine the flood insurance program."
Moreover, Mr. Hunter said, such a bill would harm "taxpayers, bail out mortgage lenders who should have required homeowners to purchase flood insurance, and encourage insurers not to pay damages that they should cover."
Mr. Hunter explained that the bill "is not the right way to help those who did not have flood insurance before the hurricanes hit."
The bill was introduced by a number of Democrats in the House. It was drafted by Rep. Gene Taylor, D-Miss. A key co-sponsor is Rep. Barney Frank, D-Mass., ranking minority member of the House Financial Services Committee, which has oversight of FEMA.
But it is under heavy fire. No Republicans are supporting it, and the Republican leadership of the House Financial Services Committee is proposing legislation dealing with the issue that calls for no federal expenditure of funds to help homeowners who don't have flood insurance.
Even mortgage lenders are backing off from supporting the bill.
Anne Canfield, executive director of the Consumer Mortgage Coalition, said that, given the opposition of Republicans on the House Financial Services Committee to the bill, the group "has decided not to publicly support the bill and to continue to review all options."
The bill being introduced by Rep. Taylor would give victims of Hurricanes Katrina and Rita the option of paying 10 years of back premiums for flood insurance, with a 5 percent penalty, which would be subtracted from their settlement. The insurance would cover up to the amount of the damage or $250,000, whichever is less.
Premiums would be set at a rate equal to the prevailing premium charged in the area prior to Hurricane Katrina, Rep. Taylor said. The legislation also permits property owners to deduct premium payments and the penalty from the NFIP claim payment.
Representatives of the Property Casualty Insurers Association of American said they "strongly support" efforts in Congress to revitalize and rebuild the Gulf Coast.
"However, allowing the retroactive purchase of flood insurance would do a disservice to the NFIP by creating a disincentive for the future purchase of flood insurance," said Scott Duncan, a staff official inWashington.
"PCI looks forward to working with Congress for ways to improve the NFIP," he said, but "retroactive coverage is an
ineffective mechanism for the delivery of badly needed relief."
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