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Government Accountability Office Issues Report on National Flood Insurance Program

The U.S. Government Accountability Office (GAO) issued a report to Congress on the National Flood Insurance Program (NFIP).

The GAO made two key recommendations based on its thorough review of the current status of the NFIP. First, FEMA should determine what information is available, internally and externally, related to the mandatory purchase requirement and use it to develop strategies for increasing consumer participation in the flood insurance marketplace. Second, FEMA should present Congress with recommendations on how comprehensive and up to date flood risk information could be used to determine which properties are subject to the mandatory purchase requirement.

The ultimate goal of the suggested improvements is to encourage better management of flood risk through insurance, which means increasing the number of consumers who purchase flood insurance, regardless of flood zone designation.  The benefits of this would be to decrease the federal debt caused by natural disasters, including types of flooding beyond the traditionally contemplated scope of flood insurance.

Further, in reviewing the mandatory flood purchase requirements, the GAO focuses on areas of impact that are currently challenges for FEMA to address: current debt; barriers to premium rate revisions; affordability; increasing consumer participation; increased private sector involvement; and building NFIP resilience.

Lastly, the report looks at the rates of compliance and lack of FEMA oversight into the mandatory purchase requirement of flood insurance. As part of the regular examination process by regulators and GSE’s, data is generated as to where the trends, deficiencies, and successes are in mitigating risk of large uninsured flood losses. Based on its independent review of data from these sources, the GAO estimates the noncompliance rates to be higher than reported due to the lack of available aggregated data across all entities that have a stake and regulatory role with respect to flood insurance. Not surprisingly, the lack of coverage and the sufficiency of flood coverage were the two most identified issues by the GAO. This was seen in 40% of violations identified by the FDIC and OCC, 39% of violations seen by the Federal Reserve, and 20% of violations identified by NCUA. Moreover, HUD conducted a study in 2020 which targeted North Carolina and Florida finding 35% of properties in Florida and 50% of properties in North Carolina did not meet the mandatory purchase requirement. The GAO believes that FEMA has an opportunity to be an information clearinghouse and leverage the data to improve the state of flood insurance and encourage compliance with the mandatory purchase requirement.

The GAO concludes the report with the hope that the sharing of information and continued collaborative efforts between the public and private sectors can be transformative in the reduction of flood risk and loss payouts in the U.S.