Senator introduces bill to shore up flood insurance program

Senate Banking Chairman Richard Shelby, R-Ala., Monday unveiled legislation to overhaul the federal government's flood insurance program by requiring more policyholders to pay fair-market rates and more homeowners to participate in the program than called for in a companion House bill.

Shelby announced his panel would mark up the measure Thursday. The measure aims to bolster the program -- funded by premiums and administered by insurance companies -- which is an estimated $23 billion in debt from claims for hurricanes Katrina and Rita.

Under the program, owners of older residences that have been in the program for a longer period of time pay less for their policies than newer homeowners who must follow more stringent flood zone requirements. Some of these homeowners pay premiums that represent only 35 to 40 percent of the actual risk, according to the Government Accountability Office.

In crafting the bill, Shelby employed an array of strategies to increase funding and make it actuarially sound -- opting not to eliminate subsidies and risk alienating lawmakers whose support for the measure would be crucial.

At the top of that list were Banking members Mel Martinez, R-Fla., and Elizabeth Dole, R-N.C., who have signaled they would not support a large hike in premiums because it would disproportionately harm coastal residents in their states.

Like the House measure, the Shelby bill would require policyholders with vacation homes to pay fair-market rates for their premiums. But the Senate measure also would end such subsidies for structures that have suffered severe repetitive losses due to flood claims, property that has incurred damage that exceeds its current fair market value and any property that has sustained substantial damage exceeding 50 percent of its fair market value or improvements exceeding 30 percent of its fair market value.

The House Financial Services Committee approved its measure in March and the bill is awaiting floor action.

The Senate bill also would require homes that are near dams and levees and sit in a 100-year flood plain to have flood insurance. That requirement would be subject to the issuance of new flood maps. By 2009, all state-chartered financial institutions would have to require mandatory flood insurance on mortgages in a 100-year flood plain. Federally chartered banks already have such requirements.

The Senate bill would also create a reserve fund to help pay claims in the case of major disasters, instead of borrowing money from the U.S. Treasury.

A spokesman for Banking ranking member Paul Sarbanes, D-Md., said Democrats worked with Shelby to assemble a bipartisan bill. A Dole spokeswoman said Shelby's staff told Dole that her concerns have been met, though aides were still reviewing the draft.

One lobbyist questioned how much Dole or Martinez might support the measure given that it would still place additional burdens upon their residents.