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.