Flood insurance and what to do with the National Flood Insurance Program (NFIP), the federally-backed program that insures about 5.6 million policyholders across the United States, continues to make the headlines.

A quick recap: the program has been allowed to lapse three times this year and is currently set to expire again September 30 – two months before the end of the Atlantic hurricane season – unless Congress authorizes another extension.

Yesterday, a USA Today article by Tom Frank discussed how the NFIP’s $19 billion deficit is not just the result of huge losses from Hurricane Katrina and premium rates that do not reflect the risk of loss, but because it continues to provide subsidies for severe repetitive loss properties.

Today a story at the TheStreet.com notes that private insurers participating in the NFIP are reconsidering their involvement after Congressional stalling and huge losses put the program’s future in doubt.

The General Accountability Office (GAO) has made clear in various studies and testimony that the NFIP is not actuarially sound and that the situation exposes the federal government and ultimately taxpayers to ever-greater financial risks, especially in years of catastrophic flooding.

Today’s op-ed in USA Today suggests that one option to fix this ludicrous situation is to phase out the federal program and turn it over the private insurers. A second option would be to restructure the program to allow it to charge premiums that reflect the true cost of risk.

What do you think?

Check out I.I.I. facts and stats on flood insurance.