Supporters of the draft legislation say the National Flood Insurance Program, which is administered by the Federal Emergency Management Agency, was poorly designed and has been pushed into bankruptcy following the 2005 hurricane season.
The program was expected to pay out an estimated $23 billion in flood insurance claims from 2005 for Hurricanes Katrina, Rita and Wilma -- more than the total amount of payments it has made since its creation in 1968, as Senate Banking Chairman Richard Shelby, R-Ala., noted at a January hearing.
"We stand at a crossroads. We can reform this program or we can continue to allow it to founder," Shelby said at Thursday's markup. Committee members said it is important for Congress to address problems with the program soon, given that the next hurricane season starts next month.
By a 20-0 vote, the committee approved the legislation that would eliminate subsidized rates for flood insurance for vacation homes, businesses and properties that have suffered "severe repetitive" losses due to flooding.
When the program was created, structures built prior to 1973 were given subsidies with the expectation that most would be destroyed or rebuilt within 10 years, Shelby said. He noted, however, that about 25 percent of structures in the program still receive a subsidy, which is "one of the greatest reasons why the flood insurance program is insolvent."
In addition, the bill would establish stringent standards that the program must use to update flood maps used to determine flood insurance rates. Shelby said updating the maps will help the program develop more accurate pricing for flood insurance policies.
"Many people don't know they are in danger of a flood" because of outdated flood maps, Sen. Jack Reed, D-R.I., said. The bill also would require lenders to maintain flood insurance coverage for all mortgages in the 100-year floodplain. The measure would increase penalties that can be levied against lenders that fail to comply.
The bill would authorize additional funding needed to cover claims from flooding caused by Hurricane Katrina and the other 2005 storms and forgive the debt owed by the NFIP to the federal government. In addition, the bill would create a mandatory reserve fund to provide funding to help pay future claims without seeking additional money from the federal government.
The bill also would require several studies, including directing Government Accountability Office to complete an audit of the flood insurance program and mandating the Treasury Department to do a study on the remaining subsidies in the program.
He said the information will help the committee in developing long-term reforms when the program is up for reauthorization in the next Congress. Sen. John Sununu, R-N.H., said he may offer an amendment on the Senate floor to eliminate subsidies for flood insurance on expensive primary residences.
He argued that, given the financial difficulties facing the program, it does not make sense to "subsidize the risks incurred by someone with a $3 million house."