Flood Insurance Solvency Threatened

Jun 14, 2011

NFIP faces external challenges that threaten the program’s long-term health.

As the nation’s flood waters are highest, the National Flood Insurance Program (NFIP) is a sinking ship according to a scathing new report by the Government Accounting Office (GAO) for congressional committees.  The NFIP has been on the GAO’s high-risk list since March 2006 because of concerns about its long-term financial solvency and related operational issues.  NFIP is managed under the Federal Emergency Management Agency (FEMA). The laundry list of serious problems at NFIP include:

  • FEMA has not developed goals, objectives, or performance measures for NFIP.
  • FEMA needs a plan that would ensure consistent day-to-day operations when it deploys staff to federal disasters.
  • FEMA lacks a comprehensive set of processes and systems to guide its operations, in particular a records management policy and an electronic document management system.
  • Limitations on FEMA’s authority could affect NFIP’s financial stability.

After 7 years and $40 million, FEMA ultimately canceled its latest effort to update its computer systems (NextGen) in November 2009 because the system did not meet user expectations. As a result, the agency continues to rely on an ineffective and inefficient 30-year old system.

Finally, NFIP’s operating environment limits FEMA’s ability to keep the program financially sound. NFIP assumes all risks for its policies, must accept virtually all applicants for insurance, and cannot deny coverage for high-risk properties. Moreover, additional external factors—including lapses in NFIP’s authorization, the role of state and local governments, fluctuations in premium income, and structural and organizational changes—complicate FEMA’s administration of NFIP.

GAO has made 10 recommendations to improve the effectiveness of FEMA’s planning and oversight efforts for NFIP for congressional consideration.  For more information read: GAO Highlights  and GAO Summary which includes links to the full GAO report.

Source: Government Accounting Office report - FEMA “Action Needed to Improve Administration of the National Flood Insurance Program”, June 2011

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