The property and casualty insurance industry should wake up andsmell the coffee.

That's because the industry is now engaged in the worst of allpossible worlds, a two-front war. And, equally important, there isno clear path out of the tunnel the industry currently finds itselfin.

The problems are the unexpected reopening of the issue of thehigh deficits facing the National Flood Insurance Program throughlegislation passed by the Senate last week — an issue moving to aHouse apparently unwilling to rubber stamp the Senateaction. 

Therefore, this emerging issue stands in the way of the secondissue and the industry's top legislative priority: reauthorizationof the Terrorism Risk Insurance Act. That program expires Dec.31.

The P&C industry saw itself in relatively good shape as thecurrent Congress started work in January 2013. While the nationwould be led by a Democrat, there would be divided government, witha Republican-led House in perfect position to guard the industry'sflanks. That is, the industry would have in place an entity in aposition to strongly counter any Obama-administration initiativefor a broad federal takeover of insurance oversight (Indeed, thatability will be on stark display Tuesday, when the leadership ofthe House Financial Services Committee holds a hearing where itplans to signal the administration in unequivocal terms that thecurrent state-based regulatory system, as dysfunctional as it is,will remain the status quo ante as long as they are incharge). 

Moreover, in the industry's view, its greatest headwind hadevaporated: the uncertainty created by the fact that a major safetyvalve, the National Flood Insurance Program, in limbo since itsauthorization expired Sept. 30, 2008, was finally reauthorizedthrough legislation enacted in July 2012. That legislationsupposedly cleared a path for a return to solvency for theNFIP. 

So in early 2013, the industry confidently laid out its plan forJob No. 1: prompt reauthorization of the Terrorism Risk InsuranceProgram ahead of its scheduled expiration date of Dec. 31,2014. 

But last week's passage by the Senate of legislation that wouldhave the practical effect of delaying scheduled NFIP rate increasesfor up to four years reopens an issue the industry thought it hadput behind it. 

But the situation is far worse than it was in 2012 beforepassage of the law that phased in actuarial rates for floodinsurance for four years. That's because any changes imposed byCongress will take no less than six months for the Write-Your-Owninsurers who administer the program to implement, according to anofficial letter by the group. And there are three other factorsinvolved:

First, it will be costly for WYO insurers to rewrite thesoftware used to implement the program, in other words, do thebilling, etc.

Second, the Congressional Budget Office says that the changeswill potentially increase the NFIP deficit by $1.9 billion over 10years, and that is before the virtual certainty that because ofclimate change there will be more Katrinas and Sandys creating aneven bigger eyesore for a Congress already dealing with intensedemands for lesser government.

Third, Congress has yet to start dealing in detail withreauthorization of TRIA. The House Financial Services Committee hadplanned to take up the issue starting in March. and the leadershipof the panel has already signaled it wants to put itslesser-government stamp on the issue, i.e., more industry skin inthe game in any legislation reauthorizing TRIA.

The House is balking at accepting the Senate package rollingback the flood-rate increases, and, again, the House FSC wants to"put its own stamp on the legislation." But, it will face intensepolitical pressure. That pressure is coming from the Senate, fromconsumers and from powerful state interests, real estate interests,homebuilding interests and mortgage-banking industry interests, allof which have a huge stake in the issue.

Effectively, the Senate legislation is an effort to adroitlycamouflage the fact that Congress didn't realize that, throughpassage of the 2012 bill mandating actuarial rates for floodinsurance, it was exposing political deals going back to 1972.

Industry officials grimaced when, during Senate debate on theflood bill last week, Sen. Heidi Heitkamp, D-N.D., cited the caseof one woman homeowner in her state whose $60,000 NFIP policy wasgoing to rise from the current $625 to $10,600 in one fellswoop.

That will back up into the talks over TRIA,leaving House FSC conservatives with less room to maneuver on theTRIA legislation. And the pressure from conservative backers tohold the line is increasing, not receding. 

It also isn't very helpful to the industry that the chiefRepublican sponsor in the House of the Senate flood bill, as wellas the TRIA reauthorization legislation preferred by the industry,is Rep. Michael G. Grimm, R-N.Y. 

Grimm was the "star" of the State of the Union address, making aspectacle of himself by being caught on camera in the Capitolphysically threatening a reporter, saying, "I'll break you in half"and threatening to throw him off a balcony.

Adding to the pressures on the conservative leadership of theHouse FSC is a campaign-finance report released late last weeksaying that conservatives seeking to pull the Republican Party tothe right raised more money last year than the groups controlled bythe party establishment.

Members of Congress are skilled debaters. But they will befacing a variety of pressures dealing with critical issues whoseresolution is needed to provide certainty to an industry providingbasic services critical to the smooth functioning of the U.S.economy. Missteps could derail the fledging housing recover andimpact the national security of our nation.

And we will have to go back to the 1950s to find a Congresscomparable to this one, and that analogy is not a positive one.

As for the House FSC hearing, it will feature an appearance byMichael McRaith, director of the Federal Insurance Office. He willdiscuss the agency's modernization report, released in December,and defend its conclusion that Congress and the states should workfor a greater federal role in an industry that is becoming moreglobal in nature. At the same time, the committee plans to have onhand witnesses aimed at making clear to the Obama administrationthat states should play a strong role in shaping the U.S. responseto those pressures.