Because of hurricanes Wilma, Katrina and Rita last year, the federally subsidized insurance program is already more than $18 billion in the hole, a number that's expected to grow to more than $23 billion in the next few months. The NFIP is in the process of paying some 250,000 flood insurance claims that were filed last year alone, but needs additional borrowing power before the process can be completed. Houston environmental lawyer Jim Blackburn says for a city that has relied heavily on flood insurance in the past, that's not good news.
"This is the largest public security, regional security issue that I have encountered in the last 15 or 20 years that I have been working in the Houston region."
In most years, the NFIP, which is run by FEMA, takes in around $2 billion in fees and premiums and pays out around half that in claims. The ongoing payouts from last year's storms total more than the program has paid in claims over it's entire 38-year history.
"One's got to question in the long-term what the policy implications of the flood insurance program are and I think that we will find that there are some relatively poorly thought-out policies behind the program. However, that does not change the fact that in the short term, we are highly dependent on that program and if the money is not allocated to it, a lot of people in the Houston area will be hurt, and hurt very badly."
But FEMA's Butch Kinerney says it's not as bad as it might seem and that anyone with government-backed flood insurance has nothing to worry about.
"Certainly, Houston folks need to be aware that floods are a major risk and that homeowners insurance does not cover flooding. But the good news is, the flood insurance program, because we're backed by the federal government and the federal treasury, we're not going anywhere and so folks who have flood insurance policies now or who decide to go out and buy flood insurance policies should definitely rest assured that that money will be there when they need it."
Federal and local flood buy-out programs have helped reduce government losses here in Houston and elsewhere, but critics say more reform is necessary to make the flood insurance program more viable in the long-term. Houston congressman Gene Green says FEMA is looking at the possibility of requiring flood insurance even in the 500-year flood plain.
"It's not required. If FEMA required them for those of us who borrow money to buy a house then it would mean thousands, and tens of thousands of new policies that would have to be issued not only in the Houston area but anywhere along where there's a flood problem, so that would bring more money into the system."
Although the NFIP can borrow from the federal treasury to pay off claims, it's required to pay back those loans with interest.