Homeowners will most likely have to pay higher premiums in order get the National Flood Insurance Program (NFIP) out of its $18 billion hole and keep it solvent. This is what government and industry officials told the House Insurance, Housing and Community Opportunity Subcommittee on Friday.
According to the Federal Emergency Management Agency (FEMA), the program presently only collects two-thirds of the needed premium revenue.
"I listened carefully to the options. None of them are extremely attractive, I might add, but we've got to do something," said Rep. Emanuel Cleaver, (D-MO). "Now is the time for us to attack the problem."
A long list of people - ranging from government officials to congressional watchdogs to insurance industry representatives to a real estate agent - testified before the subcommittee Friday. But the most highly anticipated witness was unable to attend. FEMA Administrator Craig Fugate missed the morning hearing to focus on the earthquake that rocked Japan overnight and raised tsunami warnings across the Pacific.
"It provides us with a reminder of the devastation that can be caused by flooding," Cleaver said.
In a written statement, Fugate said that the NFIP saves the U.S. about $1.6 billion annually, but keeping it financially secure is "the most significant challenge."
He suggested several reform options, from increased federal financial assistance all the way to privatizing the flood insurance market. Several witnesses said that privatization would be a mistake.
"The private insurance industry has been, and continues to be, largely unable to underwrite flood insurance because of the catastrophic nature of these losses," said Spencer Houldin, speaking on behalf of the Independent Insurance Agents and Brokers of America.
Both lawmakers and witnesses expressed concern that government-subsidized flood insurance encourages people to build and rebuild in flood-prone areas -- a problem that higher premiums would help solve.
"We must ... gradually reduce federal subsidies that keep flood insurance premiums artificially low, and that keep private insurers out of the market, and that keep taxpayers on the hook for most of the flood losses," said Rep. Robert Dold, (R-IL).