In what could become the most significant change to the National Flood Insurance Program since it started in 1968, yesterday Senate Banking unanimously passed out of committee its markup of H.R. 3121, which passed the House on September 27. H.R. 3121, the Flood Insurance Reform and Modernization Act of 2007, pushes through a small but significant number of changes to the NFIP, including some to address the biggest problem with the NFIP: that it does not (and cannot, because it is not isolated from political interference) charge actuarially-sound rates on the policies it writes.

The bill has 36 sections so I’m not going to pick it apart here, but here are a few things I latched on to (the Senate bill isn’t available yet so the section numbers refer to H.R.3121.EH):

- Quite a few authorizations for studies or reports (yea, I know, I know, but it’s something) on charging actuarially-sound rates, increasing policy holding, including building codes in flood management criteria (go figure); and the creation of a National Flood Insurance Advocate whose main purpose is to write reports.

- Section 4 specifically phases in actuarially-sound rates for non-primary residences and nonresidential properties. This is a great start, but of course specifically and purposefully leaves out setting actuarially-sound rates for most policy holders! It also caps the increase for buildings built before 1974 (known as “pre-FIRM” properties) at 20% and 25% for nonresidential and non-primary residences respectively.

- Section 11 raises the cap on annual policy rate increases from 10% to 15%. Again, at least it’s something.

- The House bill carried Section 7, adding coverage for wind in addition to flood. This would be a major, major change. The Senate Banking-passed bill, perhaps responding to a White House veto threat over the provision, left that out with a marker (an amendment offered and withdrawn by Schumer and Martinez).

- Section 36 gives authorization for adding a neat little warning on flood maps. For any area within the 100-yr floodplain that is protected by a dam or levee the maps “may” carry the following disclaimer: “NOTE: This area is shown as being protected from at least the 1-percent-annual-chance flood hazard by levee, dike, or other structure. Overtopping or failure of any flood control structure is possible. Property owners are encouraged to evaluate their flood risk, based on full and accurate information, and to consider flood insurance coverage as appropriate.” (A similar warning for the 500-yr floodplain is also included.) In the language of the legislative, the section uses “may” instead of “shall” for the warning. In other words, it authorizes but does not mandate a warning. That means it may never reach the flood maps and whether or not it does will be open to political pressure, but considering that mapmakers are geeks I can only assume that warning will appear on every map.

I haven’t seen the Senate Banking-passed bill and of course we will have to wait for the bill that comes out of the full Senate and then the Conference Committee, but in general these are very positive developments. They don’t go far enough in reforming the NFIP, but they are a solid start.