National Flood Insurance Program: New Processes Aided Hurricane Katrina Claims Handling, but FEMA's Oversight Should Be Improved
Highlights
In August and September 2005, Hurricanes Katrina and Rita caused unprecedented destruction to property along the Gulf Coast, resulting in billions of dollars of damage claims to the National Flood Insurance Program (NFIP). This report, which we initiated under the authority of the Comptroller General, examines (1) the impact of Hurricanes Katrina and Rita on the NFIP and paid losses by location and property type; (2) the challenges the Federal Emergency Management Agency (FEMA) and others faced in addressing the needs of NFIP claimants and communities; (3) FEMA's methods of monitoring and overseeing claims adjustments; and (4) FEMA's efforts to meet the requirements of the Flood Insurance Reform Act of 2004 to establish policyholder coverage notifications, an appeals process for claimants, and education and training requirements for agents. To conduct these assessments, GAO interviewed FEMA and insurance officials, analyzed claims data, and examined a sample of reports done on the accuracy of claims adjustments.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Federal Emergency Management Agency | To strengthen and improve FEMA's monitoring and oversight of the NFIP, including ensuring that claims payments are accurately determined, for future flood events when FEMA implements our prior recommendation to do quality assurance reinspections of a statistically valid sample of claims adjustments, the Secretary of the Department of Homeland Security should also direct the Under Secretary of Homeland Security, FEMA, to analyze the overall results of claims adjustments done for each future flood events to determine the number and type of claims adjustment errors made and to help determine whether new, cost-efficient methods for adjusting claims that were introduced after Hurricane Katrina are feasible to use after other flood events. |
Closed – Implemented
According to the Federal Emergency Management Agency (FEMA), the modified claims handling standards described in the September 21, 2005, Bulletin W-0504 and implemented for Hurricane Katrina losses responded to the unprecedented numbers and severity of those losses and were possible only because of the unique resources available, including the water depth data provided without cost from Louisiana State University. FEMA has determined that a detailed, room-by-room, line item-by-line item, unit-cost estimate prepared by a qualified flood adjuster is the most effective method to comply with National Flood Insurance Program (NFIP) regulation. Nonetheless, the NFIP Claims Adjuster Manual includes a description of a methodology companies may use to determine the value of flood damage when the insured building has been completely destroyed. This method requires the best available information to be used in calculating value and is similar to the square footage method authorized for devastating losses (for example, when only the foundation slab remains) such as those after Katrina in coastal Mississippi. While there are no plans to revive the modified claims handling standards authorized after Hurricane Katrina, FEMA officials said the agency is not averse to considering similar measures if a future event requires them and the atypical, cost-effective resources are available.
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