WASHINGTON (Bloomberg) - Federal government action to change the debt-ridden National Flood Insurance Program (NFIP) could create new winners and losers in the $475.2 billion property-and-casualty insurance market.The US government currently assumes most of the liability for water damage for homeowners and businesses, who pay flood insurance premiums to the NFIP that are lower than the private market would likely charge. The programme is now $17.7 billion in debt to the Treasury Department due to losses from Hurricane Katrina in 2005.Proposals now being examined by the Federal Emergency Management Agency (FEMA) and Congress could shift at least some of the liability for flood damage to private insurers. That is creating a rift between property-and-casualty insurers, such as State Farm and Nationwide Corp, who would have to write the policies, and reinsurers, such as Munich Re and Bermuda-based Ace Tempest Reinsurance Ltd, who see privatisation of flood insurance as an opportunity for new business.“This idea of privatisation is an interesting theory, but it’s not practical nor possible,” said Jimi Grande, senior vice-president of federal and political affairs at the National Association of Mutual Insurance Companies, one of the groups which opposes efforts to shift flood liability to private firms.Property-and-casualty companies say they fear privatisation would come with some form of price controls and they might be required to offer flood insurance at rates that would not cover losses.“We don’t operate in anything that closely resembles a free market,” Mr Grande said. “The government would eventually say, ‘You’re going to have to cover flood insurance, and here is how much you would be allowed to charge.’”Meanwhile, reinsurers, who make their money when insurers pay them premiums to assume a portion of their risk, say private companies could handle the programme - as long as they are able to set rates at actuarially sound levels and choose which properties to insure. Regulators don’t limit what reinsurers can charge insurance companies, so those firms are not as worried as property-and-casualty firms that they would suffer unsustainable losses.“We manage flood risk everywhere else in the world,” said Bradley Kading, president of the Association of Bermuda Insurers and Reinsurers.“The fact that the US has concentrated so much of its risk in the federal programme is unique. It’s not the norm.”Congress last year put off an attempt to change the NFIP to make it more actuarially sound, instead extending the programme in its current form until this September.In the meantime, FEMA, which administers the programme, has been soliciting different options for reform. FEMA officials said privatisation is just one option, and any major changes to the programme would have to be approved by Congress.All sides do agree that something must be done. Critics say the programme essentially offers premium subsidies of as much as 60 percent on properties in areas that should not have been developed in the first place.