Editor’s Note:

Last month Congress had to bail out the Federal Emergency Management Agency with an $18.5 billion loan so the agency could settle flood insurance claims for this year’s unprecedented storms. This after FEMA simply stopped flood insurance payments because it ran out of money, perhaps from subsidizing former director Michael Brown’s snazzy wardrobe of Nordstrom shirts.

At the same time, National Public Radio launched an in-depth investigation on an item we ran in Insurance Journal back in early November, talking about how fraudulent farmers, often in collusion with the insurance industry, are scamming the government’s crop insurance program to the tune of $160 million last year alone.

Small potatoes compared with the anticipated $23 billion FEMA tab for Katrina, Rita and Wilma, but just another indication of the ease with which well-meaning government programs can be run into the ground.

Adding another voice to the catastrophe solution is California Insurance Commissioner John Garamendi, who along with regulators from New York, Illinois and Florida is campaigning for a national catastrophe insurance system. The proposal would eliminate the National Flood Insurance Program, develop state catastrophe funds similar to Florida’s Hurricane Catastrophe Fund, creating a federal backstop for insurers, providing tax deferments for insurers to help build a fund earmarked for catastrophes and developing a national commission that would help to determine premiums based on actuarial data. The plan is not designed to bail out insurers, but to help consumers in the event of a major catastrophe, the commissioners emphasized.

Obviously, the challenge legislators face in crafting any sort of cat or terrorism solution lies in the details so that any sort of legislative solution doesn’t end up running out of money, like FEMA, or becoming a sitting duck for scam artists of all persuasions, like the crop insurance program.