The agency responsible for managing the federal flood insurance program has made progress in carrying out key changes mandated by Congress in two recent laws but lacks resources and data to completely implement others, a government report says.

See copy of report at end of story.

For instance, the Federal Emergency Management Agency (FEMA) repealed certain rate increases and got premiums refunds to policyholders of the National Flood Insurance Program (NFIP) as promised under the law. Refunds began in October 2014 and, according to FEMA, almost all refunds were issued by December 2014.

But FEMA said has been unable to make insurance rate changes for business properties because it cannot distinguish among policies for businesses, nonprofits, and other nonresidential properties.

According to the Government Accountability Office (GAO) report, FEMA has improved its mapping process but still has along way to go in this area. FEMA estimates that mapping requirements are about 30 percent complete and that it will take several years to finish. The study cites inadequate data and funding.

Progress has been mixed in the area of reserves also. While FEMA has set up a required reserve fund intended to keep the NFIP’s $23 billion debt to the federal government from growing, it has not met the yearly target for reserve fund contributions, according to GAO. It has, however, begun raising assessments and surcharges to boost the fund.

Also, the report says the government has made little progress in a key expense area: how it compensates Write Your Own (WYO) private insurers and agencies for servicing flood policies so that the cost is more in line with the private industry’s actual expenses. Citing data quality and reporting issues, FEMA told GAO it expects it to be years before it can better evaluate these WYO expenses. It has, however, reduced the expenses on certain very high-risk policies.

On the other hand, the agency has almost fully implemented mitigation assistance requirements and has established an interim consumer advocate office, despite no funding for this office, according to the GAO.

FEMA has taken some action on an affordability study that the law requires, but says data challenges have delayed that also. In February and September 2015, the National Academy of Sciences is to deliver two reports that identify approaches for both an NFIP affordability framework and nationwide affordability study.

Amended Law

The Biggert-Waters Act, enacted in July 2012, was an attempt by Congress to strengthen the finances and administration of the NFIP, which has had its share of challenges and critics over the years. Biggert-Waters required FEMA to phase-out almost all discounted insurance premiums and establish a reserve fund. However as these changes were being implemented, a number of communities and interests complained about unaffordable premiums, lost home sales, inaccurate maps, lack of community input and other issues. In response, in March 2014, Congress passed the Homeowner Flood Insurance Affordability Act (HFIAA), which restored premium subsidies and rolled back increases while altering other Biggert-Waters requirements.

Members of the House Financial Services Committee asked GAO to assess FEMA’s implementation of the laws.

Progress Report

FEMA estimated that it has completed almost half of Biggert-Waters Act sections and about one-third of HFIAA sections as of December 2014, and said it is taking action on others, including required studies.

However, FEMA and representatives of organizations with flood insurance expertise told GAO that the agency also faces challenges related to resources, the complexity of the legislation, and the need to balance NFIP’s financial solvency goal with its affordability goals.

FEMA was implementing the Biggert-Waters Act when HFIAA was passed and had to undo some of its previous actions. FEMA was operating within the budget for fiscal year 2014 that was approved prior to HFIAA and while HFIAA made funding available for certain requirements, it did not do so for others such as the flood insurance advocate position.

Reserve Fund

As of the end of 2014, NFIP’s debt to Treasury totaled $23 billion. To avoid large increases in the debt, Biggert-Waters required that FEMA create a reserve fund that maintained at least one percent of total annual potential loss exposure.

FEMA is supposed to phase-in the reserve fund over time, with at least 7.5 percent of the total added yearly, but it is not permitted to exceed annual rate increase caps to build up the reserve fund. GAO’s report says the NFIP’s current exposure is $1.3 trillion, meaning the reserve fund eventually would need to hold $13 billion, and FEMA would have to collect approximately $975 million annually (7.5 percent of $13 billion) in order to meet statutory targets.

FEMA says the reserve fund has been created. However, FEMA has not yet met the yearly statutory target for reserve fund contributions, according to GAO. FEMA has plans in place to implement a reserve fund assessment and a reserve fund surcharge.

Effective April 2015, policies that had been charged a 5 percent reserve fund assessment will be charged an additional 10 percent. For preferred-risk policies, the reserve fund assessment will increase from 0 percent to 10 percent. FEMA has issued guidance to the WYOs and will begin charging a reserve fund surcharge that is separate from the reserve assessment beginning in April 2015. Primary residential properties are subject to a $25 surcharge, while all nonprimary residential and nonresidential properties are subject to a $250 surcharge.

FEMA officials estimate that reserve fund contributions will total approximately $500 million in fiscal year 2015 and that about $1 billion will be contributed to the reserve fund in fiscal year 2016.


Biggert-Waters required FEMA to develop a methodology for compensating WYOs using actual flood insurance expense data. FEMA currently provides approximately 13 percent of collected premiums to the WYOs carriers to cover operating expenses.

FEMA said it is still developing a final methodology based on actual expenses but it has reduced the operating expense charge on the highest-risk policies effective this coming April.

Other than the change on highest-risk policies, WYO carriers are continuing to receive approximately 30 percent of premiums for expense and commissions, a percentage that was written into the agreements between WYOs and FEMA, according to GAO.

FEMA officials told GAO that once the WYO compensation methodology was complete, the rulemaking process would take several additional years.

Grandfathered Policies

FEMA never initiated rate increases to phase-out grandfathered policies as required by Biggert-Waters because the HFIAA nixed this requirement. Grandfathered properties are those that had been re-mapped into higher flood-risk zones but continued paying lower-risk premium rates.

However, FEMA says it would have faced challenges in phasing-out grandfathered policies as it does not have the elevation data necessary to determine full risk rates for all of these policies. Not all policyholders have elevation certificates that show this information in part because certificates are not required for all properties, FEMA told the GAO.

Meanwhile, Washington continues to explore ways to shrink the government’s role in flood insurance program and bring more private insurers into the mix.

Private insurance carriers do currently provide some flood coverage but typically only for commercial properties and excess homeowners flood coverage above the maximum $350,000 of building and contents coverage provided by the NFIP. According to various experts and studies, the major obstacle to private sector flood insurance is that private carriers can’t compete with the subsidized premiums offered by the NFIP. Private (re)insurers will only write significant flood business if they are allowed to charge actuarially sound rates, industry experts say.

Topics Carriers Flood