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House Adds Wind Coverage To Flood Insurance

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By BILLY HOUSE, The Tampa Tribune

Published: September 28, 2007

WASHINGTON - Despite a White House veto threat, the U.S. House on Thursday approved a bill that would add wind insurance coverage to an already debt-ridden national flood insurance program.

Before the measure was passed 263-146, Democratic Rep. Kathy Castor of Tampa and Republican GOP Rep. Ginny Brown-Waite of Brooksville successfully pushed for a study to be done on the potential effects on state insurance programs such as Florida's Citizens Property Insurance.

Brown-Waite also was promised that government auditors will evaluate whether the Federal Emergency Management Agency, which administers the National Food Insurance Program, is prepared to take on such an expansion.

Joining with Castor and Brown-Waite in voting for the bill that would renew the national flood program for five years were GOP Reps. Gus Bilirakis of Palm Harbor and C.W. Bill Young of Indian Shores. GOP Rep. Adam Putnam of Bartow opposed it.

The inclusion of the wind-insurance language in the measure was designed to address one of the key issues driving litigation in the wake of Hurricane Katrina - the difficulty of determining whether damage was caused by wind or rising water.

Thousands of Gulf Coast property owners were left after Katrina with large uncovered losses because some insurance companies blamed all the damage on flooding, which is covered by the federal program, and not from wind, for which they would have to pay.

Most of those property owners were in Mississippi, but any changes that result to the flood program could have an impact on Florida more than any other state.

Established by Congress in 1968 after private insurers dramatically raised premiums or stopped selling flood policies, the federal flood program includes 2.1 million policyholders in Florida. That makes up 41 percent of the National Flood Program's existing 5 million policyholders.

Flood insurance is mandatory for property owners in high-risk flood zones who have federally backed mortgages. The federal program provides this insurance to flood-prone areas while imposing land use and building requirements aimed at reducing future flood damage.

In all, 95 percent of all Florida communities participate in the national program.

Under the bill, existing policyholders would have the option of purchasing wind-insurance, although wind coverage won't be available as a stand-alone policy.

'If you build it right, pay your premiums, you will be paid,' said Democratic Rep. Gene Taylor of Mississippi, who proposed and championed the wind-coverage addition.

'You won't have to be there with a video camera to record if it was wind or water,' Taylor said.

Opponents argued Thursday that adding the wind coverage option is fiscally irresponsible and unfair to federal taxpayers because the program already is $18 billion in debt.

'This will put the federal government on the hook for billions more dollars,' said South Carolina Republican Rep. Gresham Barrett.

Echoed Texas Republican Rep. John Culberson, 'This is the blue-ribbon boondoggle of bad ideas.'

Taylor and others, however, argue that much of that debt results from the many flood-insurance claims from Hurricanes Katrina and Rita.

House Financial Services Committee Chairman Barney Frank, a Democrat from Massachusetts, said the measure includes other changes to make the program more actuarially sound and financially accountable, including phasing out subsidized rates on vacation homes and second homes.

The bill, for the first time since 1994, also updates maximum insurance coverage limits for residential and nonresidential properties and allows FEMA to increase policy rates by 15 percent a year. It further requires FEMA to update and modernize the nation's flood maps, which determine where and at what rate insurance under the program is available or required.

'This will add nothing to the program's deficit,' Frank insisted, although he acknowledged it will be difficult to soon erase the $18 billion debt.

The Senate, which is also controlled by Democrats, has not yet taken action on its version of the measure. If it echoes the House by approving the addition of wind coverage, the proposal could face a presidential veto.

On Wednesday, the White House Office of Management and Budget labeled the idea 'fiscally irresponsible.' It also warned that shifting liabilities for windstorm damage from private insurers to the flood insurance program 'would encourage individuals to take on risks that are inappropriate, putting themselves in harm's way because they would not have to bear the full costs of any subsequent damages.'

The memo added all taxpayers 'would be subsidizing insurance rates for the benefit of people in those high-risk areas.'

Although Castor and Brown supported the bill Thursday, they both told their colleagues there are serious questions left to be answered.

Castor said the proposal could relieve pressure on state insurers of last resort such as Citizens Property Insurance, which holds 1.3 million policies and makes insurance available where private insurers refuse to go. Because insurance companies have withdrawn from the market in many areas of the state, Citizens has ballooned to more than 40 percent of the property wind insurance market, she said.

Castor, however, also got her colleagues to pass an amendment to the bill requiring the General Accountability Office to study issues such as whether there is room in the market for an actuarially based federal program to achieve high enough enrollments to make a difference; and how enrollment and rates of state plans will change to reflect the new federal entrance into the market.

Brown-Waite was given verbal assurances by Frank that a GAO report also would address such questions as whether alternate ways to provide this coverage already exist, what the potential exposure risk would be to federal taxpayers and whether FEMA staff and resources are prepared to oversee the expansion.

The insurance industry is split on the bill. Nationwide Property Casualty Insurance Operations and Allstate Insurance Co. both support Taylor's measure. Allstate, in a letter of support, said there is a need for the federal government to be involved in windstorm-damage coverage.

On the other side, former Montana Gov. Marc Racicot, now president of the American Insurance Association, said after Thursday's vote: 'We believe the solution rests in improving, not displacing, the private sector's ability to serve homeowners and businesses in the path of potential storms.'

'This bill would result in a dramatic expansion of the flood program with the potential for huge deficits,' he said. 'Although some coastal insurance markets have been under stress since Hurricane Katrina, there is adequate capacity in every state through either the traditional market, or state residual markets. These state-operated approaches do not place the burden of deficits on all American taxpayers.'

Reporter Billy House can be reached at (202) 662-7673 or bhouse@tampatrib

.com

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