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August 27
08:12 2020

Public Policy Analysis & Opinion

By Kevin P. Hennosy


GAO calls for strengthening the flood insurance program

Flood insurance remains a topic for worry among policymakers. One could observe that the issue drives a deluge of complaint and criticism.

In recent years, policymakers focused more on avoiding the risk of flood losses than spreading the risk of those losses. This effort centers on mitigation—a 10-dollar word for knocking down buildings in flood plains.

Climate change results in more extreme and more frequent weather events. … Still, reform proposals move slowly in Washington.

Last summer, the Government Accountability Office (GAO) published another report on the National Flood Insurance Program (NFIP) and the program’s impact on the federal deficit. The report focuses on mitigation of high-risk properties through three financial grant programs administered by the Federal Emergency Management Agency (FEMA) that fund property acquisition strategies in flood-prone areas.

The GAO conducted the review at the request of two members of Congress from the state of Oregon: Peter DeFazio and Earl Blumenauer. The congressmen asked for a wide-ranging examination of the NFIP and FEMA’s administration of flood-loss mitigation programs. The GAO conducted a performance audit from January 2019 to June 2020 in accordance with generally accepted government auditing standards.

The performance audit will result in at least two reports, including the one published on June 25, 2020. That report addressed: (1) funding programs available for property acquisitions, (2) FEMA’s flood mitigation efforts, and (3) factors contributing to NFIP’s fiscal exposure. In a future report, the GAO will assess FEMA’s acquisition process and whether property acquisition is an effective tool for managing NFIP’s fiscal exposure.

The question of fiscal exposure for the flood insurance program draws many inquiries from policymakers. The GAO report explains, “NFIP has faced significant financial challenges over the years, highlighted by a rise in catastrophic flood events and its $20.5 billion debt to Treasury.”

The auditors paid special attention to the treatment of Repetitive Loss (RL) properties—“those that have flooded and received a claim payment multiple times.”

The GAO found, “From 2009 through 2018, FEMA’s inventory of new RL properties grew by 64,101. During this period, FEMA mitigated 4,436 RL properties through its three HMA (hazard mitigation assistance) programs, and an additional 15,047 were mitigated through other federal or state programs. As a result, the number of nonmitigated RL properties increased by 44,618—more than double the number of RL properties that were mitigated in that time period.”

RL classes

Federal officials place the RL properties into three subcategories.

NFIP Repetitive Loss refers to an “NFIP-insured structure that has incurred flood-related damage on two occasions during a 10-year period, each resulting in at least a $1,000 claim payment.”

FEMA uses the NFIP RL definition for insurance purposes related to the Community Rating System, for local hazard mitigation plans, and for eligibility determinations for preferred risk policies and individual assistance.

FMA Repetitive Loss refers to an “NFIP-insured structure that (a) has incurred flood-related damage on two occasions in which the cost of repair, on average, equaled or exceeded 25% of the value of the structure at the time of each such flood event; and (b) at the time of the second incidence of flood-related damage, the flood insurance policy contained Increased Cost of Compliance coverage.”

FEMA uses this definition for FMA (Flood Mitigation Assistance) purposes, as these properties are eligible for the largest federal cost share for mitigation, up to 90%. This is also the same definition NFIP uses to approve an Increased Cost of Compliance payment.

Severe Repetitive Loss refers to an “NFIP-insured structure that has incurred flood-related damage for which (a) four or more separate claims have been paid that exceeded $5,000 each and cumulatively exceeded $20,000; or (b) at least two separate claim payments have been made under such coverage, with the cumulative amount of such claims exceeding the fair market value of the insured structure.”

FEMA applies this definition in two ways. When applied to insurance claims, the Severe Repetitive Loss definition applies only to residential structures. For mitigation purposes, the definition applies to all structures.


It appears that FEMA favors the acquisition and demolition approach because it not only removes the risk of future financial loss but also maintains, restores, and conserves the natural floodplain functions in perpetuity.

Through this process, a local or state government purchases land and structures that flooded or are at risk from future floods from willing sellers and demolishes the structures.

The acquisition and destruction approach presents problems because owners must voluntarily sell the property. In addition, usually more than one property owner must agree to sell. Multiple sales often prove difficult.

In some cases, property owners will agree to the sale of property in association with the relocation of a structure. The report writers explain, “The structure must be sound and feasible to move outside of flood-prone areas.”

In addition to acquisition-centered mitigation, FEMA will sometimes fund physical changes to sound structures. “Structure elevation may be achieved through a variety of methods, including elevating on continuous foundation walls; elevating on open foundations, such as piles, piers, or columns; and elevating on fill,” according to the report. In addition to elevation, the changes must anchor structures to avoid flotation.

Other structures will receive wet or dry floodproofing improvements. Wet floodproofing cedes parts of the structure to accept floodwaters. Dry floodproofing applies water-resistant materials to structures to keep water out.

All of these mitigation efforts cost money.

Three programs

Removing RL properties presents an opportunity for long-term cost savings; however, removing property triggers material short-term expenses for states, territories, and federally recognized tribal governments.

To facilitate the financial wherewithal to remove RL property, FEMA administers three grant programs: the Hazard Mitigation Grant Program (HMGP), Pre-Disaster Mitigation (PDM), and Flood Mitigation Assistance (FMA).

“Annual Congressional appropriations fund these grants, and FEMA awards them on a nationally competitive basis,” the GAO report says.

The HMGP fosters mitigation measures following a flood event that garnered a presidential major disaster declaration. The report explains, “Mitigation project examples include acquisition, relocation, retrofitting structures to minimize damages from various natural hazards, and elevating flood-prone structures.”

PDM grants fund local mitigation plans and eligible projects that reduce or eliminate long-term risk to people and property from natural disasters, not limited to floods. The PDM expenditures include activities such as property acquisition, property elevation, earthquake hardening, and construction of tornado and high-wind safe rooms.

FMA reduces or eliminates flood insurance claims by funding cost-effective flood mitigation projects that reduce or eliminate the long-term risk of flood damage to structures insured under NFIP, through a congressional appropriation.

Federal officials use the HMGP and PDM for projects that mitigate the risk of many hazards, including flood, wind, fire, earthquake, and drought. Neither program requires NFIP coverage for property.

The same is not true for FMA, which is available only to mitigate the risk of flood on properties insured by the NFIP.

The GAO report writers recognize, “some have suggested additional funding to mitigate RL properties”; however, the GAO does not advocate simply throwing more money at mitigation programs:

We have made two recommendations to FEMA that, if implemented, could help inform Congress’ efforts to reform NFIP. In 2008, we recommended that FEMA collect information on grandfathered properties and analyze their financial effect on NFIP, and in 2013, we recommended that FEMA obtain elevation information on subsidized properties.

In addition, the GAO report reminded policymakers that NFIP premiums do not accurately represent the risk transferred to the program. “Because several categories of NFIP premium rates do not reflect the full risk of flood loss, FEMA has had to borrow $36.5 billion from Treasury to pay claims from several catastrophic flood events since 2005.”

Water’s rising

Federal, state, local, and tribal governments execute these and other mitigation programs with vigor, but the problem of RL properties continues to grow.

“Acquiring and demolishing these properties is one alternative to paying for repeated claims, but questions exist about the cost, efficiency, and effectiveness of this approach,” explains the report.

Again, the GAO report observes, “Although FEMA mitigated more than 57,000 properties for flood risk from 1989 to 2018, including more than 46,000 through acquisition, the number of nonmitigated RL properties increased from 2009 to 2018.”

Climate change results in more extreme and more frequent weather events. As a result, properties that historically stood in low-risk areas now rank as threatened by flood.

Still, reform proposals move slowly in Washington. We should not attribute that slowness to laziness. Instead we should remember an observation about another kind of inundation that the late journalist Theodore White offered: “The flood of money that gushes into politics today is a pollution of democracy.”

The author

Kevin P. Hennosy is an insurance writer who specializes in the history and politics of insurance regulation. He began his insurance career in the regulatory compliance office of Nationwide and then served as public affairs manager for the National Association of Insurance Commissioners (NAIC). Since leaving the NAIC staff, he has written extensively on insurance regulation and testified before the NAIC as a consumer advocate.

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