The Obama administration opposes adding wind-damage coverage to the troubled U.S. flood insurance program, according to a letter by a senior official, obtained Wednesday by Reuters, in a move that may bring to a close a long-running debate affecting major insurers.
The National Flood Insurance Program covers millions of Americans living in flood-prone areas. It has been drowning in debt ever since the costly hurricane seasons of 2004 and 2005.
Legislation to fix the broken program stalled in Congress last year in a dispute over wind-damage coverage, which the House wanted to add to the program, but the Senate did not.
The administration has now weighed in on the issue, with Department of Homeland Security Secretary Janet Napolitano writing to Representative Barney Frank, chairman of the House Financial Services Committee, that the administration "strongly opposes" adding wind coverage.
In another disputed issue, the administration favors forgiving the 40-year-old flood program’s $19.2 billion debt, according to the letter.
Big insurers with a stake in the debate include Allstate , Travelers Cos, Hartford Financial Services Group and Fidelity National Financial Inc.
Most of the industry, frequently divided on other issues, opposes adding wind-coverage to the program on the ground that it would crowd them out of a viable business.
"The administration has taken the right position," said David Sampson, president of the Property Casualty Insurers Association of America, a leading industry group, in a statement responding to the Napolitano letter.
The devastating hurricanes of 2004-2005 revealed deep problems within the National Flood Insurance Program, or NFIP, but efforts to fix it have resulted only in disagreement.
The letter said the administration "strongly supports forgiveness of the current debt resulting from the 2005 hurricane season … it is unlikely that the (program) will ever be able to retire this debt."
The Senate voted in May 2008 to extend the NFIP until 2013 and forgive its debt. The House also voted to extend the program but added a controversial wind-damage coverage clause to its bill and refused to forgive the debt.
Negotiators were unable to resolve their differences and the program was temporarily extended in its current form. It is administered by the Federal Emergency Management Agency (FEMA) and provides flood coverage through more than 90 companies that sell policies and collect premiums on the government’s behalf for a fee. The premiums go to FEMA.
After Hurricane Katrina slammed into the Gulf Coast in August 2005, some devastated homeowners accused insurers of avoiding big payouts by blaming damages on water and not wind, pushing claims onto the NFIP.
Lawmakers in the House responded to these homeowners’ woes, and to complaints that it was difficult to get wind-damage coverage in some areas, by adding it to the program.
But doing so could expose taxpayers to high costs, the Government Accountability Office, the investigative arm of Congress, concluded last year.
On the wind coverage issue, Napolitano told Frank in the letter: "The administration opposes extending the federal government’s role and increasing its liability for an insurance program that is readily available in the private sector and through state insurance plans … Voluntary federal wind coverage would create significant problems."
