Panel to consider bill revamping federal flood insurance program

The House Financial Services Committee will mark up legislation Wednesday that would end subsidies for vacation homes and raise the cap on annual premium increases for coverage under the federal flood insurance program.

The provisions are part of an effort to overhaul the program, which is entirely funded by premiums and administered by insurance companies. The draft measure, completed Friday, intends to make significant changes in the 37-year-old program while keeping it actuarially sound, a difficult task as costs from paying claims from hurricanes Katrina and Rita are estimated to cost as much as $23 billion.

The draft bill also would make major changes from earlier flood legislation the panel approved by voice vote in November. The draft would phase out subsidies for homes that are not a primary residence, including those that are commercially operated.

About one-fourth of participants in the program, 1.2 million policyholders, receive subsidies from within the program. Many consumer groups have advocated ending the subsidies on high-priced homes, such as those with a value of more than $500,000, but the panel decided to place the burden on owners of vacation homes.

The draft would raise the existing cap on annual premium increases from 10 percent to 15 percent. Many coastal lawmakers have been hesitant to raise the premium cap.

Many insurance lobbyists said they favorably viewed the measure, which also would increase the maximum coverage limit for structures to $670,000 in some cases. "We believe the National Flood Insurance Program is in need of significant reforms, and that this legislation is an excellent first step in that process," said Scott Duncan, director of public affairs for the Property Casualty Insurers Association of America.

Charles Symington, senior vice president of government affairs for the Independent Insurance Agents & Brokers of America, said his group was pleased that the draft would offer policyholders optional coverage so they could replace contents of their damaged residence at current market value, rather than basing reimbursement on depreciation.

"We're not reflexively opposed to it," said Andy Barbour, vice president of government relations for the Financial Services Roundtable.

The draft measure also would increase the Federal Emergency Management Agency's borrowing limit to operate the program from $18.5 billion to $25 billion. A separate bill to increase FEMA's borrowing limit has been tied up in Congress over a dispute on an unrelated measure that would boost funding this year to help low-income residents pay their home heating and cooling costs.

Insurance companies and Gulf Coast lawmakers consider increasing the borrowing authority a priority as FEMA nears its cap without paying all claims from 2005. Like the earlier measure the panel approved, the draft bill would authorize the comptroller general to conduct a study for extending insurance requirements for all properties from a 100-year flood plain to a 500-year limit.

Aides and lobbyists said the bill could be modified before markup as lawmakers go through the details of the measure.

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