Senate set to approve flood insurance bill in major victory for Sens. Tester, Vitter

After years of delay, the problems plaguing a bill to reauthorize the National Flood Insurance Program are receding.

The Senate will take up the flood insurance bill next week and passage appears certain.

{mosads}That would be a major victory for proponents Sen. Jon Tester (D-Mont.), who is in a tough reelection race against Rep. Denny Rehberg (R-Mont.), and Sen. David Vitter (R-La.).

Sen. Mark Pryor (D-Ark.) is identified by sources as a loser in the battle, since the bill is set to pass with a provision that he strongly opposes.

The National Flood Insurance Program has had 17 short-term extensions, and the program will expire on July 30 without congressional action.

NFIP is the sole underwriter of flood insurance in the country and real estate agents, homeowners, insurance providers, and the construction industry have been pushing for a long-term bill. Lapses, and the threat of lapses, are affecting the economy, they say.

A host of issues in the Senate had tied up a five-year reform law since last year but these have now been effectively resolved one way or another, aides and lobbyists said.

At one point, a major insurance association even went head-to-head in a lobbying fight against State Farm insurance company over a key provision, but State Farm has now essentially prevailed and the Property Casualty Insurers Association of America has backed off, sources said.

The biggest hurdle in the Senate was removed Wednesday when Sens. Thad Cochran (R-Miss.), Mary Landrieu (D-La.), Kay Bailey Hutchison (R-Texas) and Vitter struck a compromise with the heads of the Senate Banking Committee on an issue related to how insurance treats homes in areas covered by government levees.

These members had opposed a provision in the draft legislation, which would have mandated insurance in a wider flood zone and would have resulted in higher insurance premiums for homeowners there.

The compromise delays mandatory coverage in flood areas protected by levees until the Federal Emergency Management Agency develops new risk assessment tools to give homeowners credit for strength of the levee.

Pryor has not signed onto the compromise and is expected to offer an amendment next week that would strike it from the bill. Support for his amendment is thought to be limited although one lobbyist said the “whip count is not firm yet.”

Sen. Rand Paul (R-Ky.) is also expected to offer amendments to privatize the NFIP but they are also expected to draw little support other than from a few very conservative members.

A key reason is that the business community is not pushing for privatization. Private insurers would like to take over the program if they can offer policies at market rates. The problem is that, since flood risk is so great, the premiums would be too high for many customers to afford or for state regulators to allow, sources said.

Another amendment on the short list of about 10 amendments being contemplated is one by Sen. Kay Hagen (R-N.C.), which would authorize the government to buy up and demolish homes, such as those on the Outer Banks, that are repeatedly destroyed by flood.

The insurance industry for the most part views the bill as a win. The reform bill allows NFIP to charge higher premiums, thereby making the program mores sustainable.

A long-term reauthorization also helps preserve the reputations of the private insurers who act as middlemen for NFIP.

Most flood policies are administered and sold by private insurers, who receive a commission and get the chance to package the coverage with traditional homeowners insurance.

The repeated short-term extensions have forced these agents to send notices to customers that their flood insurance could soon expire, Tom Litjen of the Property Casualty Insurers Association of America explained. These notices alienate customers even though Congress and not the agents are to blame.

Matt Gannon of the National Association of Mutual Insurance Companies said that his group supports the bill with a few caveats.

A manager’s amendment being offered next week by Senate Banking Committee Chairman Tim Johnson (D-S.D.) and ranking member Sen. Richard Shelby (R-Ala.) contains a provision that Gannon’s group does not favor.

That provision, sponsored by Sen. Roger Wicker (R-Miss.), who is up for reelection in a safe state, aims to resolve disputes such as occurred after Hurricane Katrina about whether private wind insurance or NFIP is on the hook to pay damages.

Dubbed the Consumer Option for an Alternative System to Allocate Losses (COASTAL) act, the provision would give FEMA the option of collecting data to determine whether damage in a specific area was caused by wind or flooding. Insurers have opposed this as a federal intrusion into the private insurance market.

The compromise language makes the data collecting optional and some sources predict FEMA will not adopt it in practice.

Additional compromise language on federal mapping of flood areas, pushed by Sen. Charles Schumer (D-N.Y.), is also smoothing passage.

The battle involving State Farm and PCIAA was more minor but last fall had both sides visiting the Hill to push its point of view.

At issue was what to do with some 800,000 former State Farm-administered NFIP policies now being directly administered by the FEMA since State Farm left the flood insurance business two years ago.

Most rival insurers, represented by PCIAA, wanted Congress to give them access to managing the policies, but State Farm is opposed even though it is no longer in the flood insurance business.

State Farm argued that keeping the policies lowers costs for FEMA.

At this point, no one in the Senate appears prepared to offer an amendment on the floor to try to get FEMA to give up the policies.

“We will say we did our share of informing members on our desire to have the program stay as is,” State Farm spokesman Phil Supple said of the development.

Observers said that Sen. Mark Kirk’s (R-Ill.) illness has affected the fight as well. Kirk was fighting on behalf of State Farm and other senators are reluctant to go against his wishes since he suffered a stroke in January.

House-passed language, sponsored by Rep. Spencer Bachus (R-Ala.), would start to move some of the former State Farm policies, but that provision is not likely to remain after a House-Senate conference since PCIAA has stopped pushing the issue.

“Well, if there’s no proponent…,” Supple said.

The COASTAL Act, and levee issues will also come up again when the Senate bill goes to a House-Senate conference since provisions differ between the House and Senate bills.

The House passed a long-term reauthorization last July by a vote of 406-22.

This story was posted at 8:05 a.m. and updated at 11:58 a.m.