It would also require FEMA to refuse to accept future transfers of policies to the NFIP Direct program.

The Property Casualty Insurers Association of America (PCI) and the Independent Insurance Agents and Brokers of America support the amendment.

It was prompted by State Farm's decision to drop out of the Write-Your-Own Program in 2010. Under an agreement with FEMA, State Farm ceded underwriting of 832,000 NFIP policies to the NFIP Direct program, with the transition scheduled to be completed by September.

FEMA's letter supports the arrangement with State Farm and takes a position against the proposed amendment.

The letter says that individual full-risk national flood insurance policyholders will average savings of $7 a year savings, for a total of $30 million in savings a year for all policyholders, under the new arrangement.

Subsidized policyholders will receive $20 million in savings, which will mean the agency "can slightly reduce the average amount of subsidy and there will be more funds available to pay claims or to reduce current borrowing."

The letter, written by Edward Connor, deputy, Federal Insurance and Mitigation Administration, for FEMA, says the agency has voluntarily agreed to inform NFIP Direct customers annually of their ability to switch to a WYO-carrier. The letter estimates the annual cost of this as $900,000.

The WYO program has been consistently targeted by the Government Accountability Office as being mismanaged by FEMA.

Ben McKay, PCI senior vice president of federal government relations, defended the purpose of the amendment. He says the "historic" 700 percent expansion of FEMA's involvement in flood insurance "will put the federal government in direct competition with private market insurers and make the NFIP Direct program the largest administrator of flood insurance in the nation."

But, Phil Supple, a spokesman for State Farm, says the "amendment is not about getting the federal government out of the flood insurance business.

"It is one group of insurance companies trying to poach business from a separate group of agents," he says.

Under the arrangement with FEMA, State Farm captive agents would continue to sell the policies, but claims servicing would be handled by FEMA and government-designated claims adjusters.

The House launched debate on the legislation at 1 p.m. today. A vote on the bill is expected by late today.