By Jessica Holzer - 03/28/07 07:23 PM EDT
The lawmakers introduced legislation this week that would lift the program’s borrowing authority to $21.5 billion from $20.775 billion, enough to cover claims still trickling in from Katrina victims.
It also would increase the cap on coverage for a home to $335,000 from $250,000; abolish subsidized coverage for vacation homes; and raise the maximum premium increases from 10 to 15 percent — reforms the insurance industry believes will enhance the program’s viability over the long term.
“If you increase the coverage, you can increase the premiums and attract more people to the program,” said John Prible, the assistant vice president for federal government affairs of the Independent Insurance Agents & Brokers of America Inc. Known as the Big “I,” the trade group represents insurance agents who sell flood insurance on behalf of the NFIP.
The legislation is similar to a bill the House passed overwhelmingly last year, but differs substantially from more sweeping legislation that stalled in the Senate.
In addition to eliminating the subsidies for vacation homes, the bill would have wiped away all of NFIP’s debts and allowed 25 percent annual premium hikes on properties that had suffered repeated losses.
It had the full support of the Senate Banking Committee but was blocked by Louisiana’s two senators, Mary Landrieu (D) and David Vitter (R), who believed it would be too onerous for Gulf Coast policyholders.
Sen. Chris Dodd (D-Conn.), the Banking Committee chairman, implied that he would push legislation this year modeled after last year’s Senate bill.
“I expect that the Committee will take up this issue this Congress, starting with the outstanding work done last Congress by Senator Shelby and Senator Sarbanes,” he said in a statement.
NFIP, which is overseen by the Federal Emergency Management Agency, takes in $2.2 billion in premiums each year from about 5.4 million policies throughout the country. Homeowners with a federally backed mortgage who live in an area with a 1 percent annual risk of flooding are required to buy flood insurance.
This year alone, interest payments to the U.S. Treasury will drain $718 million from the program. Next year, NFIP will have about the same amount of interest due, adding to doubts that it will ever grow itself out of insolvency.
“They will never get solvent just based on making interest payments,” Prible said.
The House legislation would set aside funds for NFIP to update its flood-plain maps. Revising the outdated maps could sweep in many more homeowners and businesses not currently paying for flood insurance, helping to put the program on firmer financial ground.
The Property Casualty Insurers Association of America (PCI) applauded several aspects of the House bill but quibbled with a provision that would triple the time for policyholders to submit proof of loss from 60 to 180 days. The group’s senior vice president for federal government affairs, Ben McKay, argued it would saddle the NFIP with more costs and paperwork.
“The longer you get away from an event, the more difficult it will be to adjust the claim,” he said.