Financial Resources May Not Be Sufficient to Meet Future Expected Losses
RCED-94-80, Mar 21, 1994
Pursuant to a congressional request, GAO reviewed the financial condition of the National Flood Insurance Program, focusing on the: (1) actuarial soundness of the program; (2) potential financial impacts of increasing subsidized flood insurance rates and enhancing program participation; and (3) procedures used to set flood insurance rates.
GAO found that: (1) the flood insurance program is not actuarially sound because Congress authorized subsidized insurance rates for policies covering certain structures; (2) although current premium income is sufficient to cover recent flood losses, it is not sufficient to build reserves for future catastrophic flood losses; (3) increasing premiums for subsidized policies could cause some policyholders to cancel their flood insurance policies and have an adverse impact on other federal disaster-related relief costs; (4) expanding participation will increase the program's potential liability; (5) actuarial rates are based on actual risk exposures; and (6) subsidized insurance rates are set by administrative and legislative procedures.
- Closed - implemented
- Closed - not implemented
Matter for Congressional Consideration
Matter: Congress should consider any attempt to revise the flood insurance program in ways that will affect program participation, such as by expanding or strengthening the mandatory purchase requirement in the context of the integral relationship between this program and other disaster assistance programs. Similarly, a revision of the subsidized premium rate structure that would eliminate all or part of the present subsidy should be analyzed in the context of the potential financial impact on other federal disaster assistance programs through, for example, the possible cancellation of policies by policyholders.
Status: Closed - Implemented
Comments: Legislation signed by the President on September 23, 1994, calls for a study of the impact of eliminating the subsidy on pre-FIRM properties, including the cancellation of insurance policies.