Sun Herald: Flood insurance reform falls short, committee told

by Anita Lee

A House bill to reauthorize the National Flood Insurance Program through September 2015 falls far short of reform the program needs for financial solvency, experts and politicians testified during a congressional subcommittee hearing Thursday.

NFIP's instability was the main reason cited by those who oppose U.S. Rep. Gene Taylor's proposal to offer optional wind coverage. Taylor, D-Miss, was joined by Rep. Steve Scalise, R-La., in advocating wind coverage through NFIP. Both talked about the inherent conflict in having private insurance companies adjust their own wind claims, along with NFIP claims, after hurricanes.

Taylor pointed out that insurance companies such as State Farm and Nationwide denied claims for wind damage to flooded properties, contributing to a $53 billion federal tab for Katrina recovery. Average homeowners, federal judges and even congressmen were unable to get their wind claims paid, he said.

"If you can say one thing about the insurance companies after Katrina," Taylor said, "they screwed everyone equally ... It was the American taxpayers that paid."

Others, including FEMA administrator Craig Fugate and a representative of the General Accountancy Office, believe wind coverage through NFIP could push the financially troubled program over the brink.

Taylor has an ally in subcommittee chairwoman Maxine Waters, D-Calif., who authored the NFIP reauthorization bill and is a cosponsor of Taylor's multi-peril bill. Waters said her bill attempts to bring stability to a program with 5.5 million policyholders. Congress has been reauthorizing NFIP on a temporary basis, leading to two lapses in the program this year.

During lapses, NFIP is unable to write new policies or renew coverage, while buyers are unable to close on federally-backed loans in special flood hazard areas. At the same time, the housing market is struggling with an unprecedented surplus.

"This instability in the flood insurance program is hampering that market's recovery and must be addressed," Waters said.

Her bill would increase coverage limits for the first time in more than a decade, phase out premium subsidies for commercial properties and second homes, phase in premiums for properties added to special flood hazard areas, raise premium increase caps from 10 percent to 20 percent a year and create and national flood insurance advocate's office with up to $5 million a year in funding.

Fugate and Orice Williams Brown of the General Accountability Office emphasized the problems NFIP still faces. Some of the information they offered:

NFIP has no ability to repay $18.7 billion in debt created by Katrina losses.

Twenty percent of NFIP policies are subsidized through artificially low rates.

Severe repetitive loss properties account for only 1 percent of policies but 30 percent of claims.

Because of federal laws and regulations beyond its control, NFIP continues to subsidize rates while risk grows.

Rep. Shelley Moore Capito, R-W. Va., and the subcommittee's ranking member, was highly skeptical of wind coverage through NFIP.

She said, "I do have concerns about the long-term viability of NFIP to take on this added burden when you're already falling behind daily."

Brown, whose agency placed NFIP on its high-risk list in 2006, said GAO believes all flood premiums should be set at financially viable levels, with direct rather than indirect subsidies where needed.