Insurers and others praised the House Financial Services Committee's approval of legislation designed to encourage private insurers to enter the flood insurance market.

The Flood Insurance Market Parity and Modernization Act, H.R. 2901, says people who buy private flood insurance should receive the same treatment as those who purchase it through the National Flood Insurance Program when trying to get a mortgage that requires flood insurance.

Although private insurers already provide flood insurance for commercial organizations, insurers have shied away from underwriting homeowners.

“This bipartisan bill will remove unreasonable regulatory barriers that are hindering homeowners' flood insurance options,” committee Chairman Rep. Jeb Hensarling, R-Texas, said in a statement last week. “There is no doubt the National Flood Insurance Program is badly in need of reform. It is $23 billion in debt to taxpayers, it is unsustainable, and it hinders the development of a competitive private flood insurance market which would give homeowners more choices, lower costs and protect hardworking taxpayers from more bailouts.”

Hurricane Katrina in 2005 played a key role in the program's current level of debt.

Much of the property/casualty insurance industry and free-market groups welcomed the Financial Services Committee's unanimous vote last week, which sent the bill to the full House of Representatives for consideration.

“This is a significant step toward fostering a more robust marketplace for private insurers, which will provide consumers with more options for purchasing flood insurance while driving down prices,” SmarterSafer, a Washington-based coalition of environmental, taxpayer, insurer and other groups, said in a statement. “By easing regulations that discouraged marketplace competition, several states are already seeing more private insurers enter the flood insurance market, which is resulting in more competition, lower rates and better coverage.”

“This legislation simply injects a measure of common sense to existing law,” Jimi Grande, senior vice president of the National Association of Mutual Insurance Companies, said in a statement. “While the challenges remain significant, this legislation is an important first step in the process of getting the NFIP onto a track toward fiscal sustainability.”

Proponents of privatization hold that opening the market to private insurers would ease pressure on the NFIP.

“The NFIP is not only an unnecessarily burdensome program for taxpayers, it is also an unsustainable one,” R.J. Lehmann, a senior fellow at Washington-based free market nonprofit R Street Institute, said in a statement. “These vital steps toward common-sense reform will ensure a vibrant market of private capital exists to handle this risk in the years ahead.”