Legislation expanding the National Flood Insurance Program to offer coverage for wind damage will move to the House floor this fall after winning approval from the House Financial Services Committee.

The legislation–HR 3121–combined previously introduced flood reforms designed to increase the number of consumers in the program and reduce subsidies for some properties with a bill introduced earlier this year by Rep. Gene Taylor, D-Miss., to add the wind coverage option to the program.

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

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

Republicans countered, however, that it is unlikely the actuarial soundness mandate will survive political pressure to lower premiums. “We all know our constituents will be calling us from day one begging for lower rates and higher coverage,” said Rep. Tom Feeny, R-Fla.

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

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

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

Other provisions in the bill would require the Federal Emergency Management Agency to revise the nation's flood maps by 2010 and phase out subsidies for structures built before the NFIP was established that are not primary residences.

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

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

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

Responding to the committee's passage of the bill, American Insurance Association President Marc Racicot said “we continue to believe this is not the right solution,” noting a Towers-Perrin study commissioned by the group that the impact on taxpayers could be as high as $200 billion.

“We had hoped the House Financial Services Committee would have chosen to pursue a proposed six-month study by the Government Accountability Office, which would have provided in-depth analysis of adding wind coverage to the NFIP and provided a better understanding of the real cost of adding wind coverage,” he added.

Industry groups have consistently supported many of the reforms contained in the bill. However, Justin Roth, senior federal affairs director for the National Association of Mutual Insurance Companies, noted the potential hazards of adding wind coverage could effectively outweigh the other provisions.

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

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

Patricia Borowski, senior vice president of the National Association of Professional Insurance Agents, said her group was “pleased” the flood reforms were moving forward. “However,” she added, “we continue to be disappointed by, and oppose the House's inclusion of Rep. Taylor's language attaching a multiperil coverage.”

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

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

Reinsurers also sought to make the case against adding wind coverage to the NFIP. In a letter to Rep. Frank and other members of the committee, Reinsurance Association of America President Frank Nutter said adding a new type of coverage to the flood program is not a simple process.

“The underwriting and pricing of flood and wind risk are fundamentally different,” he said. “The federal government has no institutional knowledge in these areas, and it would be a daunting undertaking for them to develop such technical expertise. In addition to updating flood maps, FEMA would also have to develop wind maps for the entire United States. These tasks will only result in the creation of greater federal bureaucracy.”

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

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