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 of 2006 (FIRM), accomplishes several goals in fixing the much-maligned program, which is funded by premiums and administered by insurance companies. Under the new legislation, the Federal Emergency Management Agency (FEMA) may borrow up to $25 billion from the U.S. Treasury to cover claims and expenses from the NFIP, an increase of more than 20 percent.
In addition to increasing the amount available for claims, the bill requires FEMA to phase in actuarially sound premium rates for flood insurance on commercial and non-primary residences, such as second and vacation homes. It also enables FEMA to expand the flood insurance program to include new types of insurance — such as additional living expenses, business interruption, and additional contents coverage — not to mention higher dollar limits on the amount of coverage available.
The bill also would raise the cap on the average annual premium increase allowed for each risk category from 10 percent to 15 percent. Additionally, FIRM increases the authorization of appropriations for FEMA's flood-mitigation and flood-mapping programs.
The Independent Insurance Agents & Brokers of America hailed the passage of the bill, saying that, in particular, the increase of the NFIP's borrowing authority is crucial because of the situation encountered post-Katrina, where Congressional action to extend the monetary limit was needed in order to continue paying policyholder claims.
The National Association of Mutual Insurance Companies (NAMIC) also approved of the passage of FIRM. “It is important for Congress to address problems with the program soon, given that we are already in a new hurricane season,” said Justin Roth, senior federal affairs director for NAMIC, in a statement. “This bill provides the framework for a federal flood insurance program that will be able to continue to serve policyholders in need of flood insurance while protecting American taxpayers.”
The NFIP currently has approximately 4.7 million policies in force, with a total exposure of nearly $800 billion.
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