National Flood Insurance Program
NFIP has experienced significant challenges because FEMA is tasked with two competing goals—keeping flood insurance affordable and keeping the program fiscally solvent. Emphasizing affordability has led to premium rates that in many cases do not reflect the full risk of loss and produce insufficient premiums to pay for claims. In turn, this has transferred some of the financial burden of flood risk from individual property owners to taxpayers as a whole. Accordingly, we added this area to our High-Risk List in 2006.
NFIP has had to borrow from the Department of the Treasury to pay claims from major natural disasters. As of September 2018, FEMA’s debt stood at $20.5 billion despite Congress having canceled $16 billion in debt in October 2017. Without reforms, the financial condition of NFIP could continue to worsen.
Since our 2017 High-Risk Report, there have been no changes to the five criteria ratings because action on open recommendations has not yet been completed by FEMA, and comprehensive reform of the program has not yet been enacted by Congress.
Leadership commitment: partially met. FEMA leadership continues to show a commitment to implementing our recommendations, for example, by eliminating some potential barriers to the private flood insurance market. FEMA also took steps to protect the program’s financial stability such as purchasing reinsurance. However, Congress has yet to enact comprehensive program reforms.
Capacity: partially met. FEMA’s capacity remains strained as it deals with multiple challenges, including responding to multiple natural disasters and implementing provisions of recent legislation and leadership changes in the flood insurance program.
Action plan: partially met. FEMA identified actions to address our recommendations and tracks outstanding recommendations through an internal controls program to guide its own efforts and provide us with status updates. For example, they track and provide us with regular updates on their efforts to update their methodology for calculating premium rates. However, FEMA lacks a comprehensive plan to address the issues that placed NFIP on our High-Risk List. Such a plan could help FEMA define causes and identify effective solutions.
Monitoring: partially met. FEMA has a process to monitor progress in implementing our recommendations, including regular discussions at FEMA and the Department of Homeland Security. However, FEMA lacks a process to evaluate the effectiveness of those actions. Additional monitoring would help ensure appropriate corrective actions are taken.
Demonstrated progress: partially met. FEMA has taken steps to implement many of our recommendations, for example, by addressing a potential challenge to consumers who wish to purchase private flood insurance. However, FEMA’s efforts to address our recommendations in other areas are in progress or could take years to complete. For example, FEMA is in the process of updating its premium rate-setting methodology, but these changes will not begin until 2020. Congress held hearings on reforming NFIP and passed several short-term reauthorizations. However, Congress has yet to enact reforms related to the six areas we identified in April 2017 (program debt, full-risk-rates, affordability, consumer participation, private-sector involvement, and flood mitigation).
Over the years since we added this area to our High-Risk List, we have made numerous recommendations related to this high-risk issue. As of December 2018, 13 recommendations are open. The flood insurance program has improved in a number of areas, but to demonstrate progress, FEMA should:
- complete implementation of the Biggert-Waters Flood Insurance Reform Act of 2012 and Homeowner Flood Insurance Affordability Act of 2014,
- develop a comprehensive plan for removing NFIP from the High-Risk List,
- initiate broader monitoring of the effectiveness and sustainability of actions to implement our recommendations,
- continue ongoing efforts to improve NFIP rate-setting methods and evaluate approaches to obtain flood risk information needed to determine full-risk rates for properties with previously subsidized rates, and
- complete efforts to establish a new information technology system for NFIP.
Congressional Actions Needed
We have an open matter for Congress to consider from our April 2017 report that examined actions Congress and FEMA could take to reduce federal fiscal exposure and improve resilience to floods. We stated that Congress should consider comprehensive reform, which could include actions in six areas: (1) addressing the current debt, (2) removing existing legislative barriers to FEMA’s ability to revise premium rates to reflect the full risk of loss, (3) addressing affordability, (4) increasing consumer participation, (5) removing barriers to private-sector involvement, and (6) protecting NFIP flood resilience efforts.
GAO-17-425: Published: Apr 27, 2017. Publicly Released: Apr 27, 2017.
Based on discussions with stakeholders and GAO's past work, reducing federal exposure and improving resilience to flooding will require comprehensive reform of the National Flood Insurance Program (NFIP) that will need to include potential actions in six key areas (see figure below). Comprehensive reform will be essential to help balance competing programmatic goals, such as keeping flood insuranc...
GAO-17-36: Published: Dec 8, 2016. Publicly Released: Jan 9, 2017.
The Federal Emergency Management Agency (FEMA) has yet to revise its compensation practices for Write-Your-Own (WYO) companies to reflect actual expenses as required by the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act), and as GAO recommended in 2009. FEMA continues to rely on insurance industry expense information for other lines of property insurance to set compensation...
GAO-16-611: Published: Jul 14, 2016. Publicly Released: Jul 14, 2016.
Lenders and their regulators have taken some action to implement provisions on private flood insurance in the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act). Specifically, lenders told GAO they send notifications to borrowers that encourage borrowers to compare private and National Flood Insurance Program (NFIP) policies. Lenders with whom GAO spoke accepted private policie...
GAO-16-59: Published: Mar 17, 2016. Publicly Released: Apr 18, 2016.
The Federal Emergency Management Agency (FEMA) sets National Flood Insurance Program (NFIP) full-risk rates using a model that includes some characteristics of catastrophe models used by private insurers. In particular, both models assess flood probability and damage to estimate potential flood losses. Like private insurers, NFIP also uses variables specific to each structure in estimating the deg...
GAO-16-190: Published: Feb 10, 2016. Publicly Released: Mar 10, 2016.
Options for targeting assistance to subsidized policyholders of primary residences who may experience difficulty paying full-risk rates for their National Flood Insurance Program (NFIP) policies include means testing assistance based on the income level of policyholders or geographic areas, setting premium caps, and basing assistance on the cost of mitigating the risk of damage to their homes. Cur...