Recent hurricanes, wildfires, and other events have highlighted the challenges the federal government faces in responding effectively to natural and man-made disasters—both in terms of immediate response and for long-term recovery efforts.
National Flood Insurance Program
Flood insurance through the National Flood Insurance Program (NFIP) is a key component of the federal government's efforts to improve resilience to flood damage. However, we’ve found that the program has experienced significant challenges because FEMA is tasked with pursuing 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.
Consequently, NFIP has had to borrow from the Department of the Treasury to pay claims from major natural disasters. Most notably, FEMA borrowed $17.5 billion for claims related to Hurricanes Katrina, Rita, and Wilma in 2005; $6.25 billion for claims related to Superstorm Sandy in 2012; and $1.6 billion for claims related to a series of floods in 2016. As of March 2017, FEMA’s debt stood at $24.6 billion, but later that year, Hurricanes Harvey, Irma, and Maria produced policyholder claims that FEMA would be unable to pay before reaching its borrowing limit. In October 2017, the Additional Supplemental Appropriations for Disaster Relief Requirements Act canceled $16 billion of NFIP’s debt to enable FEMA to pay these claims. As of February 2018, FEMA’s debt stood at $20.5 billion.
Without reforms, the financial condition of NFIP could continue to worsen. As Congress considers reforms to NFIP, we suggested that it consider comprehensive reform to improve the program’s solvency and enhance the nation’s resilience to flood risk.
Six Areas That Constitute Comprehensive Flood Insurance Reform
Source: GAO. | GAO-17-425
We’ve also recommended several ways that FEMA, which administers NFIP, could improve its administration of this program, such as updating its compensation practices for private insurers, allowing prorated refunds for certain customers who switch to private insurance, improving its rate-setting methods, and providing affordability assistance.
Related GAO Reports
Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance Resilience
GAO-17-425, Apr 27, 2017
Flood Insurance: Potential Barriers Cited to Increased Use of Private Insurance
GAO-16-611, Jul 14, 2016
National Flood Insurance Program: Continued Progress Needed to Fully Address Prior GAO Recommendations on Rate-Setting Methods
GAO-16-59, Mar 17, 2016
National Flood Insurance Program: Options for Providing Affordability Assistance
GAO-16-190, Feb 10, 2016
Flood Insurance: Forgone Premiums Cannot Be Measured and FEMA Should Validate and Monitor Data System Changes
GAO-15-111, Dec 11, 2014
Alicia Puente Cackley
Director, Financial Markets and Community Investment