U.S. GAO Agrees FEMA Justified In Not Implementing Community-Based Flood Insurance

 

The Federal Emergency Management Agency  (“FEMA”) is justified in not implementing Community-Based Flood Insurance (“CBFI”), the U.S. Government Accountability Office (“GAO”) reported on August 24, 2016 in its statutory review of a related FEMA study published earlier this year.  CBFI is flood insurance that a community would purchase to cover all properties located within it.

To address challenges faced by the National Flood Insurance Program (“NFIP”) in both paying for flood losses and keeping rates affordable, the Homeowners Flood Insurance Affordability Act of 2014 (“HFIAA”) included provisions for FEMA to conduct a study and submit a report that assesses and recommends options, methods, and strategies for making CBFI available through the NFIP.  FEMA presented the study and related report to Congress in March 2016.   

To review FEMA’s Congressional report, the GAO analyzed the agency’s study’s objectives, methodology, findings and conclusions, but made no recommendations.  Rather, the GAO simply determined that FEMA used reasonable objectives and methodology, contracting with the National Academy of Sciences (“NAS”) to design a study that would provide a high-level, independent discussion of issues related to CBFI to help FEMA decide whether it should be implemented or not. 

Once the study was designed, the NAS conducted the study independently, using input obtained from an expert committee that met twice in early 2015.  The committee members represented academia, the private sector, and state and federal government. 

But ultimately given the study results, FEMA concluded that it should not conduct further related research or implement CBFI, because the challenges outweighed any potential benefit when considered against limited community interest. 

FEMA officials further cited the need to dedicate FEMA’s resources to effective NFIP reform. 

Based on the factors cited by FEMA officials, and the consistency of these factors with findings in prior GAO reports on the NFIP, the GAO determined that FEMA’s conclusion was reasonable.  Indeed, prior GAO work has highlighted challenges FEMA faces in balancing reform efforts with limited resources.

In its prior work, the GAO identified four public policy goals for federal involvement in natural catastrophe insurance and used them to evaluate changes to NFIP.  While the FEMA study did not use these goals, as part of its assessment GAO evaluated relevant elements of the study against them.  For example, one of these goals is charging premium rates that fully reflect actual risk, and the study discussed innovative uses of CBFI that could help NFIP charge such rates.  Another is encouraging private markets to provide natural catastrophe insurance.  The study discusses ways in which CBFI could encourage private market participation in flood insurance markets, as well as challenges that CBFI would pose to private insurers.

To read the GAO’s report this week, click here.  

Prior related reports on FEMA and the NFIP are provided via hyperlink below:

 

• Options for Providing Affordability Assistance
• Continued Progress Needed to Fully Address Prior GAO Recommendations on Rate-Setting Methods

 

 

 

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