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House proposes 5-year renewal of flood programme

The US House of Representatives has voted through a bill that would raise the limits of cover provided by the National Flood Insurance Program (NFIP), as well as extending its warrant until 2015.

Since the 1960s the NFIP has offered insurance cover to communities in areas affected by flooding in exchange for an agreement that active floodplain management will be undertaken.

The majority of the 5.6mn policies in place cover properties in Texas or Florida.

But the programme's future has been in doubt all this year as legislators argued over the affordability of the scheme, following Katrina losses of close to $20bn. And it has been allowed to lapse twice before temporary extensions were brought in, preventing people from buying or renewing policies.

Last week HR 5114 passed the strongly Democratic House of Representatives by 329 votes to 90. It will now move onto the Senate, where the Democrats position is considerably weaker despite an overall majority.

Representative Maxine Waters, one of the Democratic members for California, is the bill's chief sponsor.

Under its provisions, the cover limits for residential properties would be increased from $250,000 to $335,000. Maximum business cover would rise from $500,000 to $670,000.

The bill would also authorise funding of the programme through to the end of 2015.

Further, it would grant homeowners and businesses in areas recently designated as Special Flood Hazard Areas a five-year period of grace before they are required to purchase cover.

If HR 5114 becomes law, the maximum annual rate increase would double from 10 percent to 20 percent.

To reach the statute books the bill will have to pass the US Senate, where the Democrats struggle to reach the 60 votes that they need to pass a cloture motion and shut down an attempted filibuster.

Almost all NFIP policies are written by "write your own" private insurers, which take the adjusting, settlement, payment and defence of flood claims on the cover. They are then in turn reimbursed by the fund and do not share any underwriting risk.

Insurers' participation is a function of sustaining profitability in the margin between the expenses they incur and the level of reimbursement they can claim back from the programme.

The NFIP is run by a division of disaster relief agency the Federal Emergency Management Agency.

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