Matters for Congressional Consideration

1. Status: Closed - Not Implemented

   Comments: No further action is intended by the responsible committees.

   Matter: If Congress finances the program through a direct appropriation, it should amend the act to eliminate the National Flood Insurance Fund to: (1) establish instead an emergency fund to pay unanticipated losses; (2) require periodic appropriations to repay expenditures from this fund; and (3) require a business-type budget which determines the surplus or deficiency associated with the risk premium and chargeable rates.

2. Status: Closed - Not Implemented

   Comments: No further action is intended by the responsible committees.

   Matter: If Congress retains the National Flood Insurance Fund to increase its oversight and direct control of how FEMA finances its losses, it should amend the National Flood Insurance Act of 1968 to: (1) limit FEMA borrowings to extraordinary losses; (2) require regular appropriations to pay the federal subsidy and repay the prior year's earnings; (3) require FEMA to notify Congress when it borrows; and (4) require periodic congressional review of the fund's borrowing authority.

3. Status: Closed - Not Implemented

   Comments: The concerned committees have initiated a continuing review of proposed flood insurance rate increases, but have not provided guidance to FEMA on how the subsidy should be eliminated, a sensitive issue with constituents in flood-prone areas.

   Matter: Congress needs to consider: (1) telling FEMA whether it agrees with the shift in direction toward as yet undetermined rate increases or coverage reductions; and (2) giving FEMA specific guidance on how the subsidy should be eliminated.

Recommendations for Executive Action

1. Status: Closed - Implemented

   Comments: FIA and its appropriation committees have adopted a mechanism for increasing flood insurance rates so that the flood insurance program can be self-supporting in years of normal flooding. Catastrophic losses are to be funded by supplemental appropriations or increased borrowing authority rather than insurance premiums.

   Recommendation: To develop a risk premium rate structure, which produces adequate premium income and is in line with accepted actuarial principles, the Director, FEMA, should estimate and establish a catastrophic reserve.

   Agency Affected: Federal Emergency Management Agency

2. Status: Closed - Implemented

   Comments: The insurance rates were set based on loss experience through December 1986, adjusted for inflation, to provide adequate premium income to cover losses and other program expenses in an average year.

   Recommendation: To develop a risk premium rate structure, which produces adequate premium income and is in line with accepted actuarial principles, the Director, FEMA, should increase reliance on recent loss experience in setting rates.

   Agency Affected: Federal Emergency Management Agency

3. Status: Closed - Implemented

   Comments: This change in the program simplifies insurance activities and improves program administration, but it does not produce direct cost savings.

   Recommendation: To develop a risk premium rate structure, which produces adequate premium income and is in line with accepted actuarial principles, the Director, FEMA, should develop a rate structure which appropriately reflects variations in risk without unnecessary complexity.

   Agency Affected: Federal Emergency Management Agency

4. Status: Closed - Implemented

   Comments: A plan has been adopted, but the results of this plan will not be known for several years.

   Recommendation: To develop a risk premium rate structure, which produces adequate premium income and is in line with accepted actuarial principles, the Director, FEMA, should develop and implement a plan to correct the identified data and methodological weaknesses in the current FEMA rate-setting approach.

   Agency Affected: Federal Emergency Management Agency

5. Status: Closed - Implemented

   Comments: FEMA now estimates the total subsidy as part of its annual rate review. FEMA and the congressional committees, however, have not established the amount of the intended subsidy so that it and the unintended subsidy are not determined.

   Recommendation: The Director, FEMA, should state chargeable rates for the regular program so that the amount of intended federal subsidy can be accurately and readily determined.

   Agency Affected: Federal Emergency Management Agency

6. Status: Closed - Implemented

   Comments: FEMA has initiated efforts to measure the program's impact on its financial structure and is also relying on correspondence from those affected by the changes to identify impacts.

   Recommendation: The Director, FEMA, should establish a monitoring program to detect any adverse impacts which increases in chargeable rates or decreases in coverage provided at chargeable rates could have on NFIP objectives.

   Agency Affected: Federal Emergency Management Agency

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