GAO report: National Flood Insurance Program far from healthy

A report recently released by the General Accounting Office (GAO) makes clear that the National Flood Insurance Program (NFIP) will remain a policy and political nightmare for Congress for years to come.

As of Dec. 31, 2013, the NFIP owed the government $24 billion, and had not made a principal payment since 2010. The report says that the 2012 law which reauthorized the program for five years requires FEMA to issue a report to Congress by January 2013 on a repayment plan setting forth options to repay FEMA’s total debt to Treasury within 10 years. However, as of January 2014, FEMA had not issued such a report. The GAO report says that most of the options for retiring the debt would require congressional action. As required by the act, FEMA is establishing a reserve fund that could help reduce the need for future borrowing from Treasury, the GAO report said. “However, FEMA is unlikely to initially meet the act’s annual targets for building up the reserve, due partly to statutory limitations on annual premium increases.” Although Biggert-Waters, passed in 2012 phased out insurance rate subsidies on many properties, the Homeowners Flood Insurance Affordability Act passed a few months ago reinstates some of the subsidies ordered phased out by Biggert-Waters. As a result, “phasing out and eventually eliminating subsidies remaining after the 2014 Act poses challenges for FEMA.”

Besides the concern that the NFIP is unlikely to attain the congressional mandate of paying off its current long-term outlook within the required 10 years, the report raises another critical issue that has escaped public attention: the fact that there is no means of ensuring that people who by law should have flood insurance—that is, homeowners with mortgages in vulnerable areas—purchase the product. It suggests that if everyone who should have flood insurance purchases the product, it would reduce the revenue shortages that are a key component of its main problem, affordability.  Under the NFIP, there is no significant penalty for not requiring mortgage-holders in flood zones to secure and maintain flood insurance coverage, and information on the extent of compliance with purchase requirement “is limited.”

The report takes issue with complaints that the FEMA’s flood mapping activities overstates the risk of flooding. The report in fact argues that, “FEMA’s methodology for determining full-risk premium rates may not fully reflect the actual risk of flood damage as intended by Congress.”


A link to the full GAO report is here.

Congress reauthorizes NFIP…for now

by Gary Taylor

In my March 30 post I reported the news that Congress had allowed the National Flood Insurance Rate program to lapse, meaning that no new NFIP policies could be issued, existing NFIP polices due for renewal after lapse could not be renewed, and increased coverage requests could not be processed.

On April 16, 2010, Congress passed and the President signed H.R. 4851, which extends the NFIP through May 31, 2010. The extension was retroactive to February 28, 2010. 

A FEMA memo on the extension of the grace period for policies that lapsed between March 29 and April 15 can be found here.

Congress allows NFIP to lapse; no new flood insurance policies for now

Congress failed to reauthorize the National Flood Insurance Program (NFIP) by its expiration date, which was March 28 at midnight.  Congress is not expected to revisit consideration for NFIP reauthorization until it returns to session April 12, 2010.  This means that until Congress approves reauthorization of the NFIP no new NFIP policies will be issued, existing NFIP polices due for renewal during this time will not be renewed, and increased coverage requests will not be processed. Existing NFIP flood insurance policies in effect prior to the program lapse (with coverage period effective during the lapse) will be eligible for claim payments for covered damages incurred during the effective dates of the policy.

The program lapse has significant implications on the lending industry and home mortgage/building industry. Real estate transactions for properties in the Special Flood Hazard Area (SFHA) or other areas where the lender requires flood insurance to close the loan will not go through unless coverage similar to the NFIP’s flood insurance policy can be found in the private insurance marketplace that is acceptable to the lender.

A brief FEMA memo on the failure to reauthorize can be found here.

A FEMA FAQ memo concerning the lapse of NFIP and its implications can be found here.

An article from the Insurance Journal can be found here.





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