NU Online News Service, April 28, 2:49 p.m. EDT

WASHINGTON–A House panel has reported out flood insurance legislation and two other bills dealing with natural catastrophes, but only the flood program has unanimous industry backing.

The House Financial Services Committee last night cleared for a floor vote an extension of the National Flood Insurance Program for five years that has the insurance industry united behind it with firm support.

But, the industry remains divided on legislation that would create a national catastrophe insurance pool, and unanimously opposed to legislation that would add wind damage coverage to the NFIP as well as more clearly define what is covered by the NFIP and homeowners' coverage after a hurricane or similar event.

By voice vote the committee approved the Flood Insurance Reform Priorities Act of 2010 (H.R. 5114).

Besides extending the NFIP for five years, it includes limited changes for the program, such as increasing the maximum coverage limits for flood insurance policies.

At the same time, the Independent Insurance Agents and Brokers won an amendment in the bill that would add business interruption coverage and additional living expense reimbursement as an option to those participating in the program.

The panel also reported to the House floor by a 39-26 vote H.R. 2555, the Homeowners Defense Act of 2009. This is legislation sponsored by Rep. Ron Klein, D-Fla., that would create a program providing a federal backstop behind insurer-funded state catastrophe funds and federal loans if state funds are exhausted following a massive event. The industry is divided on this legislation.

Critics derisively label the bill a "Beach House Bailout."

The Multiple Peril Insurance Act of 2009 has drawn unanimous industry opposition. The legislation sponsored by Rep. Gene Taylor, D-Miss., would add wind damage coverage to the NFIP program. It passed by a 40-25 vote.

Kathy Mitchell, a federal affairs director at the National Association of Mutual Insurance Companies, noted that the panel previously had combined the multiperil bill with the NFIP reauthorization legislation. "The committee wisely chose to keep the windstorm legislation separate," Ms. Mitchell said.

"By keeping the two separate, Congress can pass the reforms the NFIP needs without adding a massive new exposure that could sink the entire program while undermining the private market," Ms. Mitchell said.

Rep. Taylor, who sued his insurer over a personal claim resulting from Hurricane Katrina in 2005, testified at a hearing held last week that there are "simple reasons" wind should be added to the program.

"Homeowners and business owners in coastal communities need to be able to buy hurricane insurance that will cover hurricane damage without needing to hire lawyers and engineers to engage in prolonged disputes over what portion of the damage was caused by flooding and what portion was caused by wind," he said.

"As long as wind and flood coverage are in separate policies, there will be gaps in coverage and disputes over causation after hurricanes," he added.

In comments following the lengthy markup on the three bills, Blain Rethmeier, a spokesman for the American Insurance Association, said a long-term reauthorization of the NFIP is "extremely important, especially for Americans living in flood-prone areas."

He said the recent lapses in the NFIP due to the use of short-term extensions has caused disruptions to homeowners, businesses and hindered real estate closings nationwide.

"We applaud the committee for moving forward on a long-term NFIP reauthorization, which will bring stability to the market," he said.

"Unfortunately, the same can't be said about the Homeowners' Defense Act," Mr. Rethmeier said.

"This bill does not require states to charge risk-based premiums, maintain adequate reserves, or establish a solid, private-market reinsurance program," he said. "Artificially suppressing insurance rates generates moral hazard by encouraging people to build and locate in more catastrophe-prone areas," he added.

But, James Lee Witt, former director of the Federal Emergency Management Agency and co-chair of ProtectingAmerica.org, argued, "Moving this bill is a major step toward the establishment of a comprehensive and integrated state and federal, public and private national program to improve the way that American families are prepared for and protected from massive natural catastrophes."

Mr. Witt said, "This bill responds to the looming threats that our families and our nation face from hurricanes along the Gulf and Atlantic coasts as well as from replays of the devastating earthquakes that have rocked the Midwest and the West Coast."

Regarding the vote on the NFIP long-term reauthorization legislation, Charles Symington, IIABA senior vice president of government affairs, said the "continued short-term extensions of the NFIP have caused considerable confusion in the marketplace."

He added, "We strongly support the Financial Services Committee's efforts to pass a long-term extension of this important program and hope that the full House and Senate will consider this legislation promptly."

Ms. Mitchell of NAMIC noted, "Both the Beach House Bailout and H.R. 1264 would be a disaster for the federal government, and ultimately the taxpayers."

She explained, "They would shift an enormous amount of risk to the federal government that is, and should be, covered in the private market."

The Reinsurance Association of America also voiced strong opposition to the Homeowners' Defense Act.

In a letter sent to the committee, Franklin Nutter, RAA president, said the bill is primarily designed to address the underfunded state insurance facilities in Florida.

Additionally, he said, "it encourages other states to change from pre-funding their insured property catastrophe exposure through insurance premiums and assessments on insurers (such as the California Earthquake Authority) to a reliance on post-event funding with federal guarantees of debt issuances.

"This is certain to add billions of dollars to the federal deficit," Mr. Nutter said.