Connor serves as deputy associate administrator, Federal Insurance and Mitigation Administration, within the Department of Homeland Security.

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

At the same time, legislation breezed through the House floor Wednesday calling for FEMA to study the advantages, and disadvantages, of providing community-based flood insurance through the NFIP.

The purpose of the study is the desire of members of Congress to see if such a program would reduce the cost of flood insurance to homeowners.

And, legislation has also been reduced that would extend the grace period for rate increases for those whose homes were flooded as a result of Sandy.

Chaney made his comments based on information provided him by the Federal Emergency Management Agency, which manages the program, that once Sandy settlements are paid – approximately three months from now—the NFIP will have a $28 billion deficit.

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

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

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

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

At the meeting, Birnbaum said “stumbles” in addressing and closing claims, both by the NFIP and private insurers, as a result of Sandy points to the need for all-perils insurance policies. “The existence of the NFIP, even with reforms, is a non-explicit subsidy,” he said.

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

Connor, responding to Birnbaum, said he

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

Regarding the mandate for the study of community-based insurance as a means of reducing costs of the program to homeowners, it would be the 12th study FEMA is obligated to conduct through the July 2012 legislation that reauthorized the NFIP for five years. It took five years for Congress to complete action on the reauthorization.

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

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

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

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

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

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