The Federal Emergency Management Agency, which racked up $17.4 million in debt in the National Flood Insurance Program after the 2005 hurricanes, doesn’t set prices to adequately reflect the cost of the risk in the properties that it insures, leaving taxpayers at risk for picking up the tab, according to a report released Monday by the Government Accountability Office.
The report, “FEMA’s Rate-Setting Process Warrants Attention,” is the latest in a series of stinging assessments of the federal flood insurance program by the investigative arm of Congress.
While few would disagree that “stinging assessments” of FEMA’s management of the NFIP are in order, GAO’s decision to produce snapshots misses the big picture.
However, Brian Martin, friend of the slabbed and Policy Director for Mississippi Congressman Gene Taylor, brings it into focus with his response published in the Times Picayune today, Raising rates won’t fix the flood program.
The Government Accountability Office’s report about the National Flood Insurance Program’s premiums is remarkably short-sighted. The flood program needs structural reform, but its problems cannot be solved simply by raising premiums and eliminating premium subsidies.
GAO completely ignored the two things that are responsible for almost all of the flood program’s debt: catastrophic levee failures and unpredictable storm surge.
The flood insurance program is in debt primarily because it has paid out billions of dollars for catastrophic flooding after levee failures, not just in New Orleans, but in Missouri, Illinois and all up the Mississippi River system. It is not feasible to raise premiums enough to cover massive levee failures. We have to reduce the risk of catastrophic flooding by making sure that flood control structures are properly designed, built and maintained.
A chart included in the report, States Where Claims Frequently or Rarely Exceeded Premiums, 1978–2007, backs up Martin’s claim about the impact of “massive levee failures” – a situation the slabbed know all too well. The GAO, to its credit, acknowledges the data are not conclusive.
We recognize that flooding is a highly variable event, with losses varying widely from year to year, and that even an analysis of nearly three decades of historical data could lead to unreliable conclusions about the actual flood risk faced by a given state…Some discrepancies in high-loss years among states are to be expected and do not necessarily indicate that NFIP premium rates are mispriced. However, if some states frequently have high-loss years or rarely or never have such years, questions arise about the rate structure…
Martin continues and exposes the negative in this GAO snapshot of the NFIP.
The second-biggest factor in the flood insurance program deficit was Katrina’s unprecedented 30-foot storm surge. The flood elevations and premiums were based on a 100-year flood estimate of 12 to 14 feet above sea level. The Katrina surge was 10 feet higher than any previous surge on record, so the destruction was much more severe than could have been expected.
This GAO report ignores a previous report that the flood insurance program did not conduct adequate oversight to stop insurers from billing the flood program for some damage caused by hurricane wind. Another GAO report exposed that the flood program provided a $100 million windfall to insurance companies by paying them much more in administrative subsidies than they actually spent handling Katrina flood claims. Before we raise premium subsidies, we should cut the administrative subsidies to insurance companies.(emphasis added)
The problems that complicate flood premiums would not apply to U.S. Rep. Gene Taylor’s proposal to allow the program to cover wind and flooding in one policy. We already have the risk and loss data we need to set risk-based, unsubsidized premiums for predictable wind exposure in coastal communities. A federal wind and water policy will guarantee coverage of hurricane damage without a prolonged fight over wind or water. It also will ensure a stable insurance market in the coastal communities that have been gouged and manipulated by the private insurance and reinsurance industry.
Excellent, Brian. Clearly, the GAO does not understand what the NFIP is NOT or they would subtract these costs and not distort the picture of the Program:
- NFIP is not insurance on the work of the Corp of Engineers.
- NFIP is not reinsurance for the private insurance industry.
- NFIP is not a mechanism for producing unrestricted income for the private insurance industry.
Neither, I might add, does the NFIP lack the data necessary to address concerns GAO cited in the report such as this one mentioned in Mowbray’s article.
The report specifically cites older properties that have been grandfathered into the program at lower rates — the type of properties that are common in New Orleans — as a source of financial instability in the program. Because the National Flood Insurance Program doesn’t track the number of properties that are grandfathered into the program at reduced rates, it can’t assess their financial impact, the GAO says.
The National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA) of the US Department of Homeland Security, produces flood hazard studies and maps for communities nationwide. The resulting flood hazard data are used primarily to support the NFIP for insurance claim information, flood risk rating, floodplain management, and flood hazard identification purposes.
Dewberry is FEMA’s Map Coordination Contractor for the Eastern Territory comprised of FEMA Regions I through IV (most of the United States east of the Mississippi River). Dewberry has served as a mapping contractor for the NFIP since 1974. Our firm’s Flood Insurance Project (FIP) provides engineering, mapping, and Program Management services to FEMA and other NFIP stakeholders. Dewberry developed a tailored management system for the NFIP that enables us to successfully direct, manage, and control this complex project while producing thousands of products annually. Our firm has provided technical support and Program Management services to FEMA since 1997 in its mission to implement Map Modernization. We have also aided FEMA in designing and implementing its Cooperating Technical Partners (CTP) Program, whereby state, local, and regional governments perform all or some flood mapping tasks previously performed by contractors. We have worked with more than 40 CTPs, the largest of which is the North Carolina Floodplain Mapping Program, under which Dewberry has provided essential Program Management support to aid North Carolina in establishing a statewide flood mapping program and meeting its aggressive schedule to have the entire state re-mapped by 2007.
Information Builders, the leader in Web business intelligence for real-time information delivery, and Computer Sciences Corporation (CSC), a leading consulting and information technology firm, have partnered to provide the Federal Emergency Management Agency’s (FEMA) National Flood Insurance Program (NFIP), a disaster relief program for flood victims, with an integrated solution to generate and deliver reports faster and obtain rapid online access to critical data at disaster scenes.
Utilizing Information Builders’ WebFOCUS business intelligence technology, CSC built an extensive, analytic intranet called BureauNet, which taps directly into NFIP files.
The company that began building this architecture in 1995 wanted its software systems to be able to “talk” across platform – something fairly common nowadays…
Obviously, the technology doesn’t want to “talk” to the GAO. Either that or GAO doesn’t want to “listen” to what these data would tell about the snapshot reports produced by the agency. The solution to the NFIP “problem” is Congressman Taylor’s proposal – and that’s the big picture the GAO is missing!.