From the U.S. Government Accountability Office, www.gao.gov

Transcript for: Flood Insurance Subsidies

Description: Audio interview by GAO staff with Alicia Puente Cackley,
Director, Financial Markets and Community Investment

Related GAO Work: GAO-13-607: Flood Insurance: More Information Needed
on Subsidized Properties

Released: July 2013

[ Background Music ]

[ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and
information from the U.S. Government Accountability Office. It's July
2013. The National Flood Insurance Program helps the federal government
limit the damage and financial impact of floods. The government
subsidizes some flood insurance policies, but is reducing the number of
subsidized policies to potentially help improve the program's financial
stability. A team led by Alicia Puente Cackley, a director in GAO's
Financial Markets and Community Investment team, recently examined flood
insurance subsidies. GAO's Sarah Kaczmarek sat down with Alicia to talk
about what they found.

[ Sarah Kaczmarek: ] FEMA's National Flood Insurance Program is on GAO's
High Risk List. What does this mean for the program?

[ Alicia Puente Cackley: ] GAO's placed the Flood Insurance Program on
the High Risk List for a number of reasons. First, it's indebted to the
treasury for over $24 billion. It also has the potential to incur losses
in the future in the case of future flood events. On top of that, we've
identified a number of operational and management challenges within the
Federal Emergency Management Agency that will have to be dealt with.

[ Sarah Kaczmarek: ] Now for someone who has flood insurance, what does
it mean to have a subsidized rate, versus a full-risk rate?

[ Alicia Puente Cackley: ] So someone who's paying a subsidized rate for
flood insurance may be paying only about 40 to 45 percent of a full-risk
rate. So their premium isn't based on the true full risk of actual
flooding of their property.

[ Sarah Kaczmarek: ] And what are some of the key challenges with the
National Flood Insurance Program?

[ Alicia Puente Cackley: ] One of the key challenges that we've
identified in this report is FEMA's inability to determine a property's
actual flood risk, and therefore, its inability to determine an
appropriate full insurance risk premium to charge a policyholder. As a
result, some policyholders may be paying too much, and others may be
paying too little, even when they're paying a full-risk premium.

[ Sarah Kaczmarek: ] Given that, what's GAO recommending FEMA do to
address these challenges?

[ Alicia Puente Cackley: ] GAO has recommended that FEMA develop and
implement a plan, including a timeline, to obtain the needed information
about the relative risk of flooding and property elevations for
policyholders who are no longer going to be charged subsidized rates.

[ Sarah Kaczmarek: ] Finally, for taxpayers concerned about residential
flood insurance, what's the bottom line here?

[ Alicia Puente Cackley: ] The bottom line is that the financial reforms
included in the Biggert-Waters Flood Insurance Reform Act could go a
long way toward reducing financial exposure to the taxpayers created by
this program. But those reforms are gonna be phased in over time, and in
order to be fully effective, FEMA has to implement them well.

[ Background Music ]

[ Narrator: ] To learn more, visit gao.gov and be sure to tune in to the
next episode of GAO's Watchdog Report for more from the Congressional
Watchdog, the U.S. Government Accountability Office.