NU Online News Service, April 22, 1:10 p.m.EDT

The House Financial Services Committee plans to mark uplegislation reauthorizing and reforming the National Flood ProgramMay 12, according to industry officials.

The officials say the committee is planning to deal with thebill on that date in hopes of getting it through the full Housebefore the Memorial Day recess, which starts May 27.

The current reauthorization of the program expires Sept. 30, theend of the government fiscal year.

Plans to get the bill through committee in early May weredisclosed as the Property Casualty Insurers Association of America(PCI) released a research paper concluding that, overall, thefederal government is providing flood insurance at roughly one-halfthe true-risk cost for NFIP policies.

In higher-risk areas where subsidies are greater, the true-riskcost is more than three times higher than NFIP rates, the studyfinds.

"We are releasing the findings of our new study on NFIP rates asa benchmarking tool to help lawmakers as they discuss the FloodInsurance Reform Act of 2011," says Robert Gordon, PCI's seniorvice president of policy development and research.

He says the flood program is currently "saddled" with $17.75billion of debt.

"We are pleased that the new bill in the House includesprovisions to move the NFIP toward more adequate rates that willstabilize the program and reduce taxpayers' exposure to costlyrelief efforts," Gordon says.

The paper notes that PCI analysts calculated a roughapproximation of the true market-risk cost of flood insurance basedon recent analyses by the Congressional Budget Office andGovernment Accountability Office of the NFIP's costs.

The analysts then added the additional amounts necessary ifcoverage were to be provided in the private sector (such asreinsurance, cost of capital, and taxes). 

While the market rate was only 23 percent higher for propertieswith lower flood risk, the market rate for properties explicitlysubsidized under the NFIP was 208 percent higher than the currentrate, according to the study.

"These large disparities between NFIP and market-risk rates arethe result of the non-actuarial approach required of the NFIP, inaddition to the fact that program rates do not reflect lost taxrevenue, capital costs, nor the costs of a catastrophe backstop(with Treasury backstopping the risk exposure for very large, lessfrequent events)," the study finds.

The study adds, "Not only are current NFIP rates far below whata private market would have required to attract capital, but thereare inadequate data available for flood risk modeling and numerouslegal challenges.

"Insurers would find it difficult to obtain adequate rates toattract capital or be able to prevent adverse selection byhomeowners, since insurers' rates and coverages are subject toprice controls and mandates in most states," the studyconcludes.