On May 25, the Senate Banking Committee approved legislation that would reform the National Flood Insurance Program, eliminating subsidies for some properties. Owners of vacation homes and properties that repeatedly get high water would see a sharp spike in their flood insurance premiums under the bill. It would also require that flood maps be updated to allow the program to transition to more accurate pricing of the insurance; require state-chartered lenders to maintain coverage on all mortgages located within the 100-year floodplain; and forgive FEMA’s borrowing for claims arising from the 2005 hurricane season. In exchange for forgiving the 2005 borrowing, the bill would seek to shore up future finances of the program by raising the annual ten percent cap on insurance premium increases to 15 percent for nonsubsidized policyholders, and 25 percent for those who get government help in paying their flood insurance premiums.

“The goal of this bill is to strengthen the program by eliminating subsidies on vacation homes, businesses, and severe repetitive loss properties today, and to lay a foundation for the elimination of all subsidies in the future,” Senate Banking Committee Chairman Richard Shelby (R-Ala.) said in an opening statement at the panel’s markup.

At the May 25 markup, Sen. John Sununu (R-N.H.) said he plans to offer an amendment to the bill on the Senate floor that would ensure that people who own million-dollar homes do not benefit from subsidized rates in the program.

A bill with the same name awaits House floor action, but it is not as expansive as the Shelby measure. The House bill by Reps. Richard Baker (R-La.) and Barney Frank (D-Mass.) would similarly impose premium increases on owners of vacation homes and businesses. But the House bill doesn't eliminate subsidies for repetitive-loss properties and only requires a study of that issue.

Flood Insurance Measure Advances (New Orleans Times-Picayune 5/26/06) 

Senate Panel Approves Flood Insurance Reforms (Reuters 5/25/06)

May 31, 2006