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Flood Insurance Premiums to Increase with Proposed Senate Bill

Source: Dow Jones

Posted on 26 Jun 2012 by Neilson

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Flood insurance pricesVacation homes and commercial properties in flood-prone areas could see their flood-insurance premiums more than double over a four-year period under a bill poised to clear the Senate this week.

The measure, which was endorsed by the Obama administration Monday, is meant to shore up the finances of a federal program that provides mandatory flood insurance. The Congressional Budget Office estimates the bill would save $4.7 billion by 2021.

The government-run National Flood Insurance Program has borrowed nearly $18 billion from the Treasury Department to pay claims resulting from the hurricane season in 2005 -- a particularly big year of flood losses. The Senate is expected to take up the legislation Tuesday or Wednesday.

The government pays flood-insurance claims, while private insurers sell policies and manage claims under the program, created in 1968. Flood insurance is required for federally regulated lenders and government-backed mortgages in flood- prone areas. Insurance industry groups say the program's rates are far too low, making it hard for private competition to emerge.

More than 20% of the 5.6 million homeowners in the program receive subsidized rates. The subsidies are directed at homes built before 1975, and homes that were built before the nation's flood-mapping system was established to designate high-risk areas.

The bill would gradually remove those subsidies for second homes as well as for commercial properties and properties with a history of repeated flood damage. But some property owners, including many living in residences built decades ago, would continue to receive support.

The increases would more than double premiums for about 440,000 policyholders who pay $1,174 a year on average, the CBO estimates. J. Fletcher Willey, who runs an insurance agency in North Carolina's Outer Banks, said local property owners with repeated flood losses would be hit with higher costs. But he said he agreed with the move by Congress.

"This is something that should have been done earlier," Mr. Willey said. "It stands to reason when a property has been damaged over and over again the property owner should pay more."

Senators still need to work out differences with a version passed by the House. The measure is backed by a broad coalition, including the insurance industry, real estate agents, fiscal conservatives and environmentalists. There are still concerns that the overhaul doesn't do enough to decrease the program's burden for taxpayers. Sen. Tom Coburn (R., Okla.) said consumers who have repeated flood-insurance claims should be kicked out of the program.

While lawmakers of both parties support the bill, there has been disagreement over whether homeowners who live behind levees or dams should be forced to buy the insurance. Sen. Mark Pryor (D., Ark.,) said requiring them to pay for insurance is unfair, given that they are already protected from floods. Other lawmakers last week reached a compromise that sets out a method for charging those customers based on the flood risk they face.

Since 2008, Congress has passed short-term bills but hasn't been able to complete a five-year extension of the flood- insurance program. The program has been allowed to lapse numerous times, delaying real estate deals. The impact of the bill is likely to be most felt in Florida, where vacation-home owners will be hit with higher premiums.