Legislation aimed at reforming the National Flood Insurance Program and strengthening its financial position was approved unanimously by the Senate Banking Committee last Wednesday.

Committee Chairman Chris Dodd, D-Conn., said the bill “helps to ensure that the flood insurance program can continue to provide critical insurance coverage so that people are not crippled when facing damage to their homes and businesses.”

Under the measure, the program's $20 billion debt would be forgiven.

The legislation had two amendments added to it prior to the markup. One, by Sen. Robert Casey, D-Penn., would establish a National Flood Insurance Advocate to handle consumer complaints, and another, by Sen. Robert Menendez, D-N.J., would extend a pilot program enabling the NFIP to better deal with severe repetitive loss structures that have incurred flood damage on more than one occasion.

Sen. Dodd noted that the pilot program had initially been approved by legislation in 2004, but the Federal Emergency Management Agency had yet to implement it. The amendment, he said, would ensure the program was given a full five years for its effectiveness to be measured.

Sen. Mel Martinez, R-Fla., raised the issue of adding windstorm coverage to the program, which was the focus of an amendment that he had planned to offer with Sen. Charles Schumer, D-N.Y. However, the amendment was withdrawn prior to the markup. Adding wind coverage, he said, “would have been a great improvement to the program.”

Sen. Dodd responded that there was “merit in that suggestion” but cautioned that he felt the Senate could not act on such a proposal without an understanding of how it could affect the issue. “The problem is we don't know what the implications” of that are, he said, adding that he “would be uneasy” moving on an issue without knowing what its ultimate effects would be.

Sen. Tom Carper, D-Del., suggested that adding wind coverage to a program already needing to be relieved of its $20 billion debt might be asking too much.

“That may be a bridge too far,” he said.

Insurance industry groups have supported the Senate version of the bill in a large part because it does not include the wind coverage position.

“We are especially pleased the committee chose not to overburden the program,” said Justin Roth, senior federal affairs director for the National Association of Mutual Insurance Companies. “Including wind in the NFIP would be bad public policy and put taxpayers on the hook for a risk the private marketplace is able to write.”

American Insurance Association President Marc Racicot noted that Congress would be better served to help the private sector manage windstorm risk than to place it on the backs of the taxpayers, and offered a prediction of what the implications that concerned Sen. Dodd would be.

“Adding wind coverage would result in a dramatic expansion of the NFIP–with the potential for huge deficits–and a fundamental realignment of both the NFIP and the private wind insurance market,” he said. “It would also encourage building in hurricane-prone regions, putting more people and property in the path of devastating storms.”

Noting that his group “has always supported reforming the flood program so that it can be solvent for the foreseeable future and helpful to consumers in need,” David Sampson, the new president and chief executive officer of the Property Casualty Insurers Association of America, said the inclusion of wind coverage “would be extremely costly and potentially very damaging” to the program and policyholders.

“We fully support the proposal to move forward with needed reforms without including needless additional exposure to a program that is already overburdened in the wake of Hurricanes Katrina and Rita,” he said.

The wind coverage provision, originally authored by Rep. Gene Taylor, D-Miss., is included in the House version of the legislation, meaning the issue will have to be worked out in House-Senate conference.

One agents group, the Independent Insurance Agents & Brokers of America, expressed some dismay about the lack of coverage expansion in the Senate bill, although not in reference to the windstorm provision. The IIABA had pressed for an increase in maximum coverage limits and the inclusion of optional coverages such as business interruption coverage and additional living expenses.

“Both an increase in the maximum coverage limits and an inclusion of optional coverages would better allow both individuals and commercial businesses to insure against the damages that massive flooding can cause,” says John Prible, assistant vice president for federal government affairs for the IIABA. “We hope the Senate will consider including these provisions as the legislation moves forward.”

Art caption: