Lawmaker unveils bill to overhaul flood insurance program

The 38-year-old program suffered massive losses in the aftermath of hurricanes Katrina and Rita.

House Financial Services Chairman Barney Frank, D-Mass., unveiled legislation Monday to revamp the federal government's flood insurance program with a measure that would boost the program's borrowing authority and provide homeowners more time to file a proof-of-loss claim.

Lawmakers want to overhaul the 38-year-old program after it suffered massive losses in the aftermath of hurricanes Katrina and Rita. Critics also complain that older structures in the program receive less than fair-market rates compared to newer homes under the program, resulting in some high-priced coastal properties receiving a de facto subsidy.

The House measure would increase the program's borrowing authority from $20.8 billion to $21.5 billion to cover recent losses.

The program relies on policyholder premiums for funding, but it ran a deficit after Katrina and Rita struck. The Federal Emergency Management Agency, which administers the program, has borrowed money from the Treasury Department to pay for the claims.

The bill also would authorize additional funding for programs that mitigate storm damage, require update of flood maps and increase outreach efforts for homeowners to participate in the program.

The Property Casualty Insurers Association of America criticized some provisions in the bill, saying that it could add significant paperwork, claims and litigation expenses to the program. The group criticized language that would triple the time period that policyholders are allowed to file a proof-of-loss claim from 60 days to 180 days, which it said could add significant costs to the program.

A Frank aide defended the measure, noting that during Katrina, many Gulf Coast homeowners were not able to travel back to their homes for months after Katrina to examine damage to their property.

PCI also noted that the bill requires a "one page" description of the coverage the policy provides. It noted that a similar requirement, albeit more than one page, was included in a 2004 flood law.

"Certainly, it is imperative that we address the solvency of the NFIP, both in the short term and in the long term, because this is a vital, necessary program for consumers," says Ben McKay, the association's senior vice president, federal government relations. "We must be careful not to cancel out those positive steps by creating additional costs for a program that is already drowning in debt."