WASHINGTON (Reuters) - Insurance companies' handling of damage claims from hurricanes, where both wind and water destroy property, needs closer government scrutiny, congressional investigators said on Wednesday.

Following bitter complaints from some Gulf Coast homeowners about insurance coverage after Hurricanes Katrina and Rita in 2005, the Government Accountability Office (GAO) urged better assessment of "the accuracy of flood payments on hurricane-damaged properties."

The GAO, the investigative arm of Congress, said questions remain about the Federal Emergency Management Agency's approach to flood-damage claims processed by private insurers for the government under its National Flood Insurance Program (NFIP).

The GAO urged Congress to empower the agency to examine both wind and water claims data related to hurricane damages.

It also said state regulators need to strengthen licensing and training requirements for insurance adjusters.

Republican. Spencer Bachus of Alabama said the GAO report contains "sensible recommendations" and deserves further discussion in the House Financial Services Committee, where he is the ranking Republican member.

"We are ready to work with federal legislators and state regulators to ensure that the National Flood Insurance Program is administered correctly," said Cliston Brown, director of public affairs at the Property Casualty Insurers Association of America, an industry group.

Disputes over "wind versus water" damage have plagued State Farm, Allstate Corp and other insurers ever since Hurricane Katrina slammed into the Gulf Coast in August 2005 with 140-mile-per-hour winds and a massive flood surge.

After Katrina and Rita hit, some homeowners accused insurers of refusing to provide coverage by blaming hurricane damage on flooding, shifting claims onto the NFIP.

"This report has no mention of any evidence that the insurance industry engaged in a pattern of improperly attributing wind damage to water," said Carl Parks, senior vice president for government affairs at the National Association of Mutual Insurance Companies, another industry group.

"While the report does cite the need for reforms to the National Flood Insurance Program, it does not fault insurance companies for their actions following Hurricane Katrina."

The GAO report comes as bills in both the Senate and the House propose incremental changes to the badly crippled NFIP, which is scheduled to expire in September if not renewed.

"Passing legislation to keep the NFIP in place is our top legislative priority in 2008," Mr. Brown said.

Katrina and the other hurricanes of 2005 left the NFIP $17.3 billion in debt to the US Treasury. The program is widely seen as incapable of repaying its massive debt.

Under the NFIP, about 90 private insurers sell and service flood policies on the government's behalf. The companies process claims and collect premiums, which are passed along to the Federal Emergency Management Agency.

The government is involved in the market because the private sector on its own does not adequately cover flood risk. Most homeowners' policies cover wind damage but not flooding.

The NFIP's post-Katrina debt would be forgiven under a bill approved in October by the Senate Banking Committee. The bill would extend the NFIP for five years. But a vote on the bill by the full Senate has been blocked by Louisiana lawmakers who are concerned it would boost insurance rates in their state.

The Senate bill would not expand the NFIP to cover wind damage, as was proposed in a bill approved by the House in September. In another difference with the Senate, the House bill would not forgive the NFIP's debt.

The Bush administration has threatened to veto the House bill. The insurance industry opposes expanding NFIP to cover wind.