Controversy Over S. 2884 Continues

Nowdy and I are lucky to have cyber friends like Mr CLS and Belle that help keep an eye out for insurance news we miss. Yesterday we missed big time on a Times Picayune story by Rebecca Mowbray on the behind the scenes politicking over the Senate version of Gene Taylor’s HR 3121, S. 2284 but thanks to Mr CLS we bring it to you today.

The issues involved in renewing the National Flood Insurance Program are simple. Differences in the House and Senate version center on adding actuarially sound wind coverage, increasing the coverage limits and the rate of premium increases for vacation homes and homes that suffer repeated claims.  Wind coverage is the main fly in the ointment to reaching a compromise.

At slabbed our preference for the provisions in HR 3121 is no secret. That said, as a matter of public policy we agree with the need to encourage flood mitigated development in the flood plain and see no reason to subsidize vacation homes or homes with repeated claims histories. However, for main homes that for whatever reason have repeatedly flooded, we can’t throw those people under the bus either, we must provide a workable mechanism for those people to reconstruct flood mitigated or outside the flood plain.

Without further commentary on my part, here is yesterday’s Rebecca Mowbray story on NFIP re-authorization.

Seven months after the House passed a flood insurance overhaul bill, action in the Senate remains stalled by disagreement over whether the program should add wind coverage and whether rates should be increased significantly for residents with a history of expensive claims.

The four senators from Louisiana and Mississippi this week reiterated their concerns over a bill pending in the Senate, sending a letter to the measure’s sponsors.

“We need to ensure that homeowners are offered a full spectrum of insurance products to protect themselves and their investments against future damage,” said Sen. David Vitter, R-La., who joined Sen. Mary Landrieu, D-La., in putting a hold on the Senate bill.

One issue in dispute is the decision of the Senate bill’s sponsors, Democrat Chris Dodd of Connecticut and Republican Richard Shelby of Alabama, to exclude a House provision that would add wind damage coverage to the National Flood Insurance Program.

Vitter and Landrieu, backed by Mississippi Sens. Thad Cochran and Roger Wicker, both Republicans, said that private insurance companies are either declining to provide wind coverage in coastal areas, or raising prices so high as to make them unaffordable. Rep. Gene Taylor, D-Miss., sponsor of the House flood insurance bill, accused insurance companies of failing to pay claims for wind damage by attributing damage to flooding and thereby passing the costs to the federal program.

But the insurance industry has mounted a major lobbying effort against the wind coverage provision and has found allies in Shelby and Dodd who point to the costs of such an expansion.

Also at issue is the Senate bill’s provision to allow flood insurance premiums to be raised by up to 25 percent annually for vacation homes and homes with severe repetitive loss claims or residences that sustained damage exceeding 50 percent of their market value. The House bill would allow rate increases of up to 15 percent a year for vacation homes and other homes that are not the primary residence of the owner.

The Louisiana and Mississippi senators argue that the rate increases, which sponsors say would bring premiums in line with actuarial rates, would be prohibitive to some.

The four senators also want the Senate to follow the lead of the House and increase coverage limits from $250,000 for structural damage to $335,000, and for contents from $100,000 to $135,000. The senators’ letter said that coverage limits haven’t been increased since 1994.

But there seems little give from either Dodd, whose state is home to the national headquarters of many insurance companies, or Shelby, with both arguing that costs need to be reined in. After Katrina, the National Flood Insurance Program borrowed $17.5 billion from the U.S. Treasury to pay claims and expenses. The Dodd-Shelby bill would forgive that debt.

Kate Szostak, spokeswoman for Dodd, the chairman of the Senate Banking Committee, said the “bill protects both the property owners who need flood insurance and the taxpayers who guarantee it.”

Shelby spokesman Jonathan Graffeo said the senator “believes strongly that the flood program must not only be there for those who need it, it must be structured in a way that protects the taxpayers who back it.”