The flood insurance program has the money to pay claimsresulting from Superstorm Sandy, but is just “one large event” awayfrom needing to ask Congress for permission to borrow more money, astate insurance regulator is warning.

Mike Chaney, Mississippi insurance commissioner and head of theNAIC Property Casualty Insurance Task Force, made the comment basedon projections that the cost of Sandy to the National Flood Insurance Program will beapproximately $7 billion.

Chaney's comments were amongst a flurry of developmentsregarding the deficit-ridden flood insurance program.

In comments at a Federal Advisory Committee on Insurance meetingWednesday, Edward Connor, a FEMA official, said the agency wasworking on privatizing the agency.

Connor serves as deputy associate administrator, FederalInsurance and Mitigation Administration, within the Department ofHomeland Security.

He was responding to a question from Birny Birnbaum, a member ofFACI and a consumer advocate, as to why the federal government isinvolved in a “non-explicit” subsidy program.

At the same time, legislation breezed through the House floorWednesday calling for FEMA to study the advantages, anddisadvantages, of providing community-based flood insurance throughthe NFIP.

The purpose of the study is the desire of members of Congress tosee if such a program would reduce the cost of flood insurance tohomeowners.

And, legislation has also been reduced that would extend thegrace period for rate increases for those whose homes were floodedas a result of Sandy.

Chaney made his comments based oninformation provided him by the Federal Emergency ManagementAgency, which manages the program, that once Sandy settlements arepaid – approximately three months from now—the NFIP will have a $28billion deficit.

That means that the NFIP will have a $28 billion deficit onceSandy claims are paid, Chaney said, even though Congress in earlyJanuary approved a 50% increase in the NFIP borrowing authority, to$30.425 billion.

Given the projections on the cost of claims resulting fromSandy, the NFIP will have $2.425 billion in borrowing authorityonce all Sandy payments are made.

“This is probably enough for a couple of small events, ofcourse, but they are only one large event away from needingadditional money,” Chaney said.

The debate over flood insurance and the government role in it atthe FACI meeting was lengthy. The government and industry arediscussing the issue because there is strong pressure in Congress,especially from Republicans on the House Financial ServicesCommittee, to privatize the entire program.

At the meeting, Birnbaum said “stumbles” in addressing andclosing claims, both by the NFIP and private insurers, as a resultof Sandy points to the need for all-perils insurance policies. “Theexistence of the NFIP, even with reforms, is a non-explicitsubsidy,” he said.

“Why would you want the government to be involved in a subsidythat isn't explicit?” Birnbaum asked. “We don't ask insurancecompanies to subsidize auto insurance for poor.”

Connor, responding to Birnbaum, said he

“totally agreed” with Birnbaum. He said the agency is movingtoward privatization, “but that there will always be a smallfederal role in flood insurance.”

Regarding the mandate for the study of community-based insuranceas a means of reducing costs of the program to homeowners, it wouldbe the 12th study FEMA is obligated to conduct through the July2012 legislation that reauthorized the NFIP for five years. It tookfive years for Congress to complete action on thereauthorization.

It comes as members of Congress come under pressure fromconstituents because the 2012 bill increased the annual increaseFEMA can make in flood insurance premiums from 10% to 20%annually.

Other pressures for increases are coming from provisions thatraise rates based on remapping which determines that the risk of aflood is greater in a particular area.

During the floor debate, Rep. Blaine Luetkemeyer, R-Mo., saidthat FEMA has testified before Congress that voluntarycommunity-based flood insurance could help NFIP better account forthe full cost of flood risks.

It would also provide incentives to encourage communities toimplement greater flood mitigation measures, Luetkemeyer said.

The bill was sponsored by Rep. Spencer Bachus (R-Ala.) and GwenMoore (D-Wis.) It passed 397-17.

“We think that it is appropriate to commission this study of thecommunity-based flood insurance concept so that FEMA can understandhow it could be put to its greatest benefit,” Luetkemeyer said.