The proposal would apply to property owners who suffered hurricane flood damage this year but did not have flood insurance policies because their property was not located in federally designated flood areas that are subject to mandatory purchase requirements. To be eligible, those property owners would have to have purchased other types of hazard insurance before Hurricane Katrina struck.
Rep. Gene Taylor, D-Miss., introduced the temporary buy-in proposal in September as a stand-alone bill, and Rep. Melvin Watt, D-N.C., has included similar provisions in a larger hurricane relief package introduced earlier this month. Watt, who chairs the Congressional Black Caucus, also tried to attach the buy-in proposal to a flood insurance overhaul bill during last week's House Financial Services Committee markup.
"These were people who were outside the floodplain," said Watt, whose amendment failed on a 34-32 vote after more than an hour of contentious debate. "There wasn't any reason for these people to buy flood insurance."
The flood program, administered by the Federal Emergency Management Agency, offers low-cost flood insurance to property owners in high-risk areas, provided they take steps to mitigate flood damage. Watt said his amendment was prompted in part by FEMA's announcement that, starting Dec. 1, it would stop subsidizing hotel rooms for hurricane evacuees. He said providing some of those evacuees with retroactive flood insurance would be a "humanitarian gesture."
But Republicans said allowing retroactive coverage for some homeowners would turn the whole concept of insurance on its head. "If we did this, why would anybody buy health insurance? Why would anybody buy auto insurance? Why would anybody buy fire insurance?" said Rep. Jeb Hensarling, R-Texas. "We will rue the day that we did this."
Financial Services Capital Markets Subcommittee Chairman Richard Baker, R-La., agreed that the proposal would set a "difficult" precedent. Baker said it also would lead to an enormous increase in the amount of money that FEMA would have to borrow from the Treasury Department to pay out hurricane-related claims.
"I just don't know that we should go there," Baker said. "I am not opposed to this for any other reason than I do not believe it would be in the best interests of our constituents right now."
The flood program is funded by premiums and does not use taxpayer funds to pay claims or operating expenses. But FEMA is allowed to borrow funds from Treasury -- which it later repays with interest -- to pay catastrophic NFIP claims that exceed the flood program's budget. The House and Senate last week approved emergency legislation to increase FEMA's borrowing authority from $3.5 billion to $18.5 billion to pay claims related to hurricanes Katrina and Rita.