Congress is coming under renewed pressure from both state andfederal legislators to reduce the cost of flood insurance andprovide greater subsidies for the National Flood InsuranceProgram.

Specifically, Mississippi Rep. Steven Palazzo, R, last weekintroduced a bill that would slow planned flood insurance rateincreases over the next 10 years by phasing out insurance subsidiesover a longer period of time.

Another bill the congressman is sponsoring would offerflood-mitigation tax credits of up to $5,000 for homeowners andsmall businesses, as well as grant tax credits to NFIPpolicyholders who take steps to mitigate future flood risks.

Ironically, the bills, sponsored by Rep. Steven Palazzo,R-Miss., were introduced the day he voted for the budget proposal,sponsored by Rep. Paul Ryan, R-Wis., that calls for program cutsthat would eliminate the federal government deficit over 10years.

Additionally, the New Jersey State Senate passed a resolutionlast week, S.R. 102, declaring the legislature's sense thatCongress and the White House ought to “take all appropriatelegislative and regulatory action necessary to increase subsidiesfor premiums paid for flood insurance through the NFIP, especiallyfor property owners who have suffered frequent losses.” Theresolution passed unanimously.

The pressure is coming despite the fact that a state regulatorsaid last week that the NFIP is just “one large event” away fromneeding to ask Congress for permission to borrow even more money,even though its debt limit was raised 50 percent in January.

Moreover, legislation was passed last July—after years ofeffort—to reauthorize the program for five years. That legislationwas promoted as “requiring the NFIP to adopt more actuarially soundrates for its insurance and plan for repaying funds previouslyborrowed from taxpayers” during floor debate and in comments by itsprincipal supporters.

And a key member of the House is advocating that the NFIPbe privatized. Rep. Jeb Hensarling, R-Texas, said he hopes topropose such legislation later this year. He made his commentsduring floor debate in January on legislation that increased theNFIP's borrowing authority by $9.7 billion, from $20.775 billion to$30.4 billion.

Last week, Mike Chaney, Mississippi insurance commissioner andhead of the NAIC Property Casualty Insurance Task Force, estimatedthat once Sandy settlements of approximately $7 billion arepaid–approximately 3 months from now—the NFIP will have a $28billion deficit.

Palazzo justified his legislation by saying that some homeownersand small businesses in the Gulf Coast areas he represents “arefacing a lot of uncertainty right now as a result of new increasesscheduled to take effect over the next two years.”

He said, “I absolutely believe we must make changes to keep NFIPsolvent — people need access to affordable insurance. What Idisagree with is the severe and unfair way these rates areincreased over the next few years under current law.

“The financial strain on families, small businesses, and newhomebuyers could ultimately affect South Mississippi'seconomy.”

He wants changes made in the Biggert-Waters Flood InsuranceReform Act of 2012, passed last July.

Under the bill, which reauthorizes the NFIP until 2017, themaximum rate increase the NFIP could impose in a given year wasraised from 10 percent to 20 percent, and, in some cases up to 25percent.

Palazzo said that for those selling their home, rates would besignificantly and immediately increased to get homes to theactuarially sound rate. Palazzo's bill would reinstate themoderate growth rate after a home sale.

In commenting on the New Jersey Senate resolution, R.J. Lehmann,a senior fellow at the R Street Institute, calls the resolution a“self parody.”

“The NFIP has been offering overly generous subsidies toresidents of flood-prone regions for more than 45 years, and theroughly 1 percent of policyholders who suffer 'repetitive losses,'(90 percent of whom were paying deeply discounted 'grandfathered'rates, have accounted for more than a third of all the program'sclaims,” Lehmann says.

The result of the subsidies, Lehmann explains, “which theN.J. Senate apparently would like to see expanded, has been nothingbut environmental catastrophe and financial ruin. To put itfrankly, the NFIP is flat-broke, and has been ever since 2005, whenHurricanes Katrina, Rita and Wilma forced it borrow more than $19billion from the U.S. Treasury just to pay its claims.”

Lehmann says there was little chance the program ever would beable to pay down that debt, and what little progress it did makewas quickly erased by Hurricanes Ike in 2008 and Irene in 2011.

“But with claims still coming in from last year's SuperstormSandy, whatever hope may once have existed of the NFIP returning tofiscal sustainability has long since been swept away,” Lehmannnotes. “When all is said and done, the Sandy claims are expected toput the program more than $30 billion in the hole, with no hope ofever digging itself back out.”

Steve Weisbart, chief economist for the Insurance InformationInstitute, says it is “very discouraging” to see decisionmakersattempt to backtrack on reforms designed to get rates to anactuarially sound level. “People need to be honest about what therisk really is,” he says.

He proposed addressing the financial issues for homeownersthrough a loan program that would provide support, but not distortthe true insurance exposures.

He adds that pricing risk accurately is the “right thing to do”so that people get a fair look at the risks they are facing.

Additional reporting by Phil Gusman