Flood Insurance:

Federal Emergency Management Agency's Basement Coverage Limitations

RCED-86-10FS: Published: Jan 31, 1986. Publicly Released: Jan 31, 1986.

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In response to congressional requests, GAO reported on the Federal Emergency Management Agency's (FEMA) Federal Insurance Administration (FIA) limitations on flood insurance coverage of basement contents, specifically FIA: (1) authority to change insurance coverage; (2) analysis of flood insurance losses to support basement coverage limitations; (3) reasons for rejecting other alternatives for modifying basement coverage; and (4) notification of policyholders of the new limitations.

FIA limited basement flood insurance coverage effective October 1983, in order to reduce future flood claim payments under the national flood insurance program because it decided that: (1) basement flooding represented a risk inconsistent with a sound federal insurance program; and (2) the program should respond only to the basic needs of its policyholders as defined by FIA. GAO found that: (1) under the Flood Insurance Act of 1968, FEMA has authority to decide what should be insured, the nature and limits of loss or damage, the classification of risks by type, and risk limitations and rejections; (2) FIA analysis showed that basement buildings experienced four times the claim loss frequency as buildings without basements; (3) FIA did not select alternatives for modifying basement coverage because the potential risk to the taxpayers of higher claims payments was unwarranted; and (4) the federal courts ruled that the FIA notification procedure was legally adequate.

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