House OKs Flood Insurance Program Overhaul

Published: Fri 16 Jul 2010

Lucas Eichmann

Certain subsidies would come to an end and a degree of financial strength would be restored with a House-approved revamping of the government program that offers flood insurance to over five million companies and homeowners in flood-prone regions.

The legislation, which allows the National Flood Insurance Program to operate for the next five years, also permits a few deductible and premium hikes as the government tries to recoup some of the losses from the 2005 hurricane season, including Katrina, that added $18.75 billion to the debt of the U.S. Treasury. The legislation passed 329-90 yesterday.

The flood insurance program, a branch of the Federal Emergency Management Agency, has offered affordable coverage for more than 40 years to over 20,000 communities that engage in flood-damage-reduction efforts and to homeowners in areas designated as flood zones by the government. The program was established in 1968 because of private insurers' reluctance to pay for flood damage.

Congress has not revised the program since 1994. In the following years the formerly solvent program paid out roughly $17 billion in claims resulting from Hurricane Katrina and had to face FEMA flood-zone remapping that has put thousands of companies and homes in regions where they are compelled to purchase flood insurance.

The bill's chief sponsor, Representative Maxine Waters, said it would help mitigate the sticker shock of FEMA's rezoning by postponing the compulsory purchase of insurance for five years and then gradually introducing full premiums over an additional five years.

The Bill's Tenuous Future

The legislation will now progress to the Senate, where it's future is unclear. Because Congress has not produced a long-term bill, the flood insurance program has expired three times already this year, and Waters reported that 1,200 people per day could not close on their house purchases in flood zones during those lapses because FEMA could not renew old policies or issue new ones. The flood insurance program currently is operating on a short-term extension that ends on the last day of September.

Rachel Racusen, FEMA's press secretary, was hopeful that Congress would approve a long-term measure that would improve and strengthen the flood insurance program. "This program is critical for Americans who need to protect their homes, businesses and livelihoods from flooding," she commented.

The legislation would gradually eliminate subsidies currently available on some second and vacation homes and nonresidential properties and would also phase out subsidies for serious repetitive-loss properties.

The bill ups the yearly limit on premium hikes to 20 percent from 10 percent, increases annual deductibles, and boosts maximum coverage limits for residences to $335,000 and $670,000 for businesses. Presently, the average yearly premium is roughly $570.