The National Flood Insurance Program: a High-Risk Business

High Risk MedallionThe National Flood Insurance Program (NFIP) is a key component of the federal government’s efforts to limit the damage and financial impact of floods. However, it likely will not generate sufficient revenues to repay the billions of dollars borrowed from the Treasury to cover claims from catastrophic events like Hurricane Katrina and Superstorm Sandy. NFIP has not paid any principal on these loans since 2010 and has outstanding debt of $24 billion. We’ve placed NFIP on our High Risk list because of concerns about its long-term financial solvency and related operational issues.

In 2012, Congress phased out subsidized flood insurance premium rates, causing more property owners to pay higher NFIP premiums that better reflect the full risk of flood losses. As we discussed, this change eliminated subsidies for more than 400,000 policies, leaving just over 700,000 policies subsidized.

Excerpted from GAO-13-607

Recently, responding to concerns over the higher premiums, Congress passed the Homeowner Flood Insurance Affordability Act, and reinstated some of the subsidized premium rates it had eliminated in 2012. Continuing these subsidies will help some property owners, but it transfers the financial burden to all taxpayers and keeps NFIP financially unsustainable in the long term. We have suggested that Congress could eliminate subsidized rates, creating and funding a direct, means-based subsidy for specific policyholders to reduce costs to taxpayers while addressing affordability concerns and also making the cost of the subsidies more visible.

We have also made several recommendations to the Federal Emergency Management Agency (FEMA), which oversees NFIP. In May 2014, we reported that FEMA has made some progress in all of the areas required for removal of NFIP from the High Risk list, but still needs to initiate or complete additional actions such as modernizing its claims and policy management system.


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