WASHINGTON (Reuters) - As a tsunami bore down on the western United States, a congressional panel explored ways to fix the broken National Flood Insurance Program, which covers more than 5.6 million U.S. property owners.
Since Hurricane Katrina in 2005, the NFIP has been nearly $18 billion in debt. Critics complain that it subsidizes people who live and build in dangerous and environmentally sensitive flood zones from the coasts to the Midwest.
Repeated attempts to overhaul the program have failed, but Republican Rep. Judy Biggert is trying again as chairman of the U.S. House of Representatives insurance subcommittee. She held a hearing on the issue on Friday.
“There’s no question the program is in dire need of reform,” Biggert said at the session, noting that the NFIP “continues to be financially unstable” and that one of her key goals will be to “eliminate taxpayer risk.”
The tsunami provides a reminder of the dangers of flooding, the most common and costly type of natural disaster in America, said Rep. Emanuel Cleaver, a Democrat.
“It’s time that we do an overhaul of the NFIP. Something has to be done. We’re $18 billion underwater,” he said.
A long debate lies ahead. Congress is unlikely to take final action before late September, when the program’s current authorization is set to expire.
Biggert has offered draft legislation that would let premiums rise closer to market rates to reflect the actual risks involved, reduce taxpayer subsidies, and improve the flood zone maps which form the basis of the program.
Industry lobbyists packed the hearing room. Major insurers with a stake in the outcome of the debate over the NFIP include Allstate Corp, Zurich Financial Services AG’s Farmers Insurance, Travelers Cos Inc and Hartford Financial Services Group Inc.
Federal Emergency Management Agency Administrator Craig Fugate had been slated to testify, but he canceled because of the tsunami. FEMA manages the NFIP.
Standard homeowners’ insurance does not cover flooding. The government set up the NFIP in 1968 to provide affordable insurance, impose flood management policies on vulnerable communities and reduce federal disaster aid costs.
The NFIP provides coverage through more than 80 companies that sell policies and collect premiums on the government’s behalf for a fee. The premiums go to FEMA.
In recent years, with severe hurricanes in 2004 and 2005, premiums have not met claims costs, forcing FEMA to borrow money. As things stand, there is little prospect that FEMA will be able to fully repay the NFIP’s debt.
“The program’s financial solvency is in jeopardy,” said Republican Rep. Robert Dold at the hearing.
Since 2008, the program has functioned under a series of short-term extensions. Last year, Congress let the program lapse four times, complicating real estate transactions.
Editing by Gerald E. McCormick