The program was given a brief reprieve Friday when President Obama signed a four-day spending bill into law that extends the program, relied upon by some 5 million homeowners, until Oct. 4.
A six-week spending bill up for a House vote on Tuesday is expected to extend this program until Nov. 18, but passage of a five-year extension is proving elusive.
The biggest remaining hurdle appears to be a fight between Illinois-based State Farm insurance and the rest of the property insurance industry.
Sen. Mark Kirk (R-Ill.) is seen as State Farm’s biggest champion.
Sen. Sherrod Brown (R-Ohio) is on the other side, having prepared an amendment State Farm opposes.
In its corner, State Farm has Porterfield & Lowerthal’s Lendell Porterfield, a former adviser to Senate Banking Committee ranking member Sen. Richard Shelby (R-Ala.).
The Property Casualty Insurers Association of America has Browstein, Hyatt, Farber and Schreck and a lobbying team that includes Jacob Johnson former aide to Senate Finance Committee ranking member Orrin Hatch (R-Utah).
Prospects for an ugly amendment fight in the Senate could mean that Majority Leader Harry Reid (D-Nev.) keeps the bill off the floor this month for fear of it eating up too much precious floor time, sources said.
At issue is what to do with some 800,000 former State Farm insurance policies now being directly administered by the Federal Emergency Management Agency since State Farm left the flood insurance business last year.
The federal government provides flood insurance coverage but the policies are normally sold and administered by private insurance agents who thereby get the opportunity to sell their own products, such as homeowners or car insurance, to clients.
FEMA is now directly administering the former State Farm policies.
Most rival insurers want 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 argues that its independent agents will lose other business if other insurers are granted access to the flood policies.
In practice, homeowners tend to seek other types of insurance from the same agent who sells flood insurance. Customers sent to other firms for flood insurance would be less motivated to purchase State Farm coverage for regular home damage and other risks.
The House this summer passed its NFIP bill and its language would effectively force less than half of the State Farm policies into the hands of rival insurance companies. The Senate bill as passed out of Senate Banking this month does not have the provision.
HR 1309 requires FEMA to come up with a plan to limit the number of policies it directly administers to 10 percent of the 5 million policy market.
Ben McKay, senior vice president of federal government relations for PCIAA said keeping the former State Farm policies out of the market stifles competition and hurts consumer choice. He argued that the NFIP program was never designed to have 16 percent of the market under direct FEMA administration.
State Farm spokesman Phil Supple countered that the House provision “is not about getting the federal government out of the flood insurance business, as some may contend. It is one group of insurance companies trying to poach business from a separate group of agents.”
He argued that consumers are not being given the choice to remain with their current agent under the House bill. This is because State Farm does not permit its independent agents to sell products administered by other insurance companies.
Supple said State Farm also reads a summer letter from FEMA as backing its viewpoint.
Acting FEMA director Edward Connor in June wrote to Rep. Randy Neugebauer (R-Texas) that FEMA would oppose any language that required individuals to move policies to other companies.
“Requiring the policies to be transferred…could harm agents who work with State Farm because State Farm prohibits agents from working with other insurance companies, its agents would have to choose between continuing to work with State Farm or continuing to work with individuals who hold the State Farm flood insurance policies,” Connor wrote.
Supple said State Farm is making its case to a wide range of legislators, not just Kirk.
All this may mean the bill, and its other reforms of the flood insurance program, gets kicked down the road. A likely outcome could be another one-year extension included in a final fiscal 2012 spending bill.
Twenty-two amendments were filed in the Senate Banking committee but not addressed.
“Reid has said, the bill has to be able to get off the floor in a week,” McKay said grimly.