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Federal Emergency Management Agency: Improvements Needed to Enhance Oversight and Management of the National Flood Insurance Program

GAO-06-119 Published: Oct 18, 2005. Publicly Released: Oct 18, 2005.
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Highlights

In the wake of Hurricane Isabel in 2003, GAO was mandated by the Flood Insurance Reform Act of 2004 to report on issues related to the National Flood Insurance Program (NFIP) and its oversight and management by the Federal Emergency Management Agency (FEMA). Private insurance companies sell NFIP policies and adjust claims, while a private program contractor helps FEMA administer the NFIP. To address this mandate, this report assesses (1) the statutory and regulatory limitations on coverage for homeowners under the NFIP; (2) FEMA's role in monitoring and overseeing the NFIP; (3) FEMA's response to concerns regarding NFIP payments for Hurricane Isabel claims; and (4) the status of FEMA's implementation of provisions of the Flood Insurance Reform Act of 2004. Although impacts from Hurricane Katrina were not part of the report's scope, GAO recognizes that this disaster presents the NFIP with unprecedented challenges.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Directorate of Emergency Preparedness and Response To improve FEMA's oversight and management of the NFIP, the Secretary of the Department of Homeland Security should direct the Under Secretary of Homeland Security for Emergency Preparedness and Response to use a methodologically valid approach to draw statistically representative samples of claims for underwriting and claims portions of operational reviews and for quality assurance reinspections of claims by general adjusters.
Closed – Implemented
In GAO's most recent assessment of the Federal Emergency Management Agency's (FEMA) oversight of Write-Your-Own private (WYO) insurance companies who sell and service flood insurance policies, we reported that FEMA's March 2009 draft Control Plan changed the methodology to reflect this recommendation and FEMA documentation showed that the agency was selecting statistically representative samples of files to review for claims operation reviews and underwriting operation reviews. We also reported that, for claims reinspections, FEMA's March 2009 draft Control Plan changed the file selection methodology to partially implement our recommendation; i.e., a random selection, but only from a population that fits certain criteria of over 400 claims per a single event. For our sample of 10 WYOs, we found that this eligible population represented a small portion (13 percent) of all claims filed in FY2007.
Directorate of Emergency Preparedness and Response To improve FEMA's oversight and management of the NFIP, the Secretary of the Department of Homeland Security should direct the Under Secretary of Homeland Security for Emergency Preparedness and Response to develop documented plans with milestones for implementing requirements of the Flood Insurance Reform Act of 2004 to provide policyholders with a flood insurance claims handbook that meets statutory requirements, to establish a regulatory appeals process, and to ensure that insurance agents meet minimum NFIP education and training requirements.
Closed – Implemented
In October 2005, we reported that the Federal Emergency Management Agency's (FEMA) flood insurance claims handbook did not fully comply with statutory requirements to include information regarding the appeals process that FEMA was statutorily required to establish through regulation. FEMA provided a revised Flood Insurance Claims Handbook, effective as of November 13, 2006, that includes a detailed description of the claims appeal process. FEMA sent a memo to flood insurance coordinators in December 2006 directing their attention to the revised handbook. We also reported that the establishment of a regulatory appeals process is required by section 205 of the Flood Insurance Reform Act of 2004, but, at the time of our report, it was unclear how or when FEMA would establish the regulatory appeals process. FEMA issued a press release and published a Final Rule on Flood Insurance Claims Appeals Process on Oct. 13, 2006. Finally, we reported that Section 207 of the Flood Insurance Reform Act of 2004 required FEMA, in cooperation with the insurance industry, state insurance regulators, and other interested parties, to establish minimum training and education requirements for all insurance agents who sell flood insurance policies. At that time, we concluded it was too early to tell the extent to which insurance agents would meet FEMA's minimum standards. In July 2009, FEMA provided an update on the status of states' efforts to implement mandatory flood insurance training requirements that showed that, as of May 26, 2009, almost all states had implemented such requirements.

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Topics

Emergency managementFlood insuranceFloodsHurricane IsabelHurricane KatrinaInsurance claimsInsurance regulationMonitoringProgram managementProperty damage claimsRegulatory agenciesReporting requirements