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June 24
09:22 2020

Public Policy Analysis & Opinion

By Kevin P. Hennosy


In 20I7, 95% of NFIP communities did not participate in the rating system

On May 5, 2020, the Government Accountability Office (GAO) released a report on the National Flood Insurance Program (NIFP) that suggests reforms to make the program more efficient. The report used Texas and Florida experience to assess the program’s procedures.

The report emphasizes that the Federal Emergency Management Agency (FEMA) does not possess staff resources to manage the program to peak efficiency. It also cites an inability of FEMA to field the personnel necessary to conduct substantial damage assessments of properties after a flood.

The GAO focused on activities conducted in accordance with FEMA’s Community Rating System (CRS), which encourages community floodplain management. The GAO report cites three goals of the CRS program:

  • Reduce flood damage to insurable property by reducing existing buildings’ risk of flood damage and by protecting new buildings from current and future flood hazards;
  • Strengthen and support the insurance aspects of NFIP, in particular by encouraging communities to implement NFIP flood maps and increasing residents’ awareness of flood risk so they purchase and maintain flood insurance policies; and
  • Foster a comprehensive approach to floodplain management, such as by ensuring that new development does not cause adverse impacts elsewhere in the watershed or on other properties.

As part of the CRS, FEMA measures “substantial damage” as an expression of reconstruction costs to damaged structures. The report explains:

Substantial improvement refers to any reconstruction, rehabilitation, addition, or other improvement of a structure that equals or exceeds 50% of the market value of the structure before the start of the construction. Repair of substantial damage means that the cost of restoring the structure to its pre-damage condition equals or exceeds 50% of the market value of the structure before the damage occurred.

In cases of substantial damage, the structure should undergo risk mitigation improvements during reconstruction. The report finds that FEMA lacks the personnel to effectively implement this standard.

To expand FEMA’s ability to work with state and local officials, Congress approved the Community Assistance Program (CAP), which depends on the cooperation and performance of local communities … .

The report also cites problems in defining what market value means for the purpose of making a substantial damage assessment:

Current NFIP regulations do not define market value explicitly. Elsewhere, FEMA documents describe it as “the amount an owner would be willing but not be obliged to accept, and that a buyer would be willing but not compelled to pay” for a structure. NFIP documents stipulate that market value is based only on the value of the structure, not the land, and must always be based on the condition of the structure before damage occurred or improvements were undertaken.


To expand FEMA’s ability to work with state and local officials, Congress approved the Community Assistance Program (CAP), which depends on the cooperation and performance of local communities to conduct this important work. The program provides funding that “helps to ensure that NFIP communities reduce instances of flood loss.

The CAP includes a “State Support Services Element” of the program that provides funds for state flood plain management personnel to support FEMA’s regional office staff with NFIP community monitoring, including funding for state staff to conduct community assistance visits, according to the GAO report.

States and localities benefit from lower flood insurance rates as they improve the assessment of at-risk properties and apply mitigation actions. At least, that is the way it is supposed to work.

Poor participation

Without definitively saying it, the GAO report provides evidence of the reluctance in the states and localities to participate in the program. “As of June 2017, about 5% of NFIP communities participated in CRS, and more than 69% of all flood insurance policies were written in CRS communities,” according to the report.

Parochial interests at the local level place a great deal of pressure on local officials, which is especially true in small towns. It proves difficult for local officials in small towns to stand up against property owners, who own structures in flood plains. In addition, farmers often oppose flood plain management that would put acreage out of production.

The report also cites the difficulty FEMA faces when working with local officials to adopt updated flood risk maps: “A community official said that his com-munity has been working with FEMA to revise a map for a few years and noted that some property owners in the community planned to challenge the new maps, further delaying adoption.”

The Flood Zone

Submitted for your approval, two old guys who live and work in the rural midwestern United States. They might remind us of any number of small-town codgers, who practice commerce and democracy at the lowest level with the highest intensity. But these two guys live in The Flood Zone!

Farmer: Mayor Otto! How is the jewelry business? Shop doin’ well?

Mayor: Can’t complain. Your fields look good! How’s all those grandkids?

Farmer: I know why you want to know! They get closer to needin’ engagement and wedding rings every day. (laughing)

Mayor: Well, we will be ready when that time comes.

Farmer: Of course, that FEMA rep is snoopin’ around lookin’ at some of my buildings.

Mayor: Yes, they came by City Hall with a list. We are supposed to do some figurin’ on who needs to put buildings on stilts or knock down the structures.

Farmer: Can’t you do something about that? We have always had those buildings down there.

Mayor: Times change.

Farmer: Yup, I guess you’re right. I gotta go. The Mrs. is in the truck and wants to go to Walmart. She says they have an impressive jewelry counter. … See ya, Mayor.

Yes, the Federalists Hamilton and Madison and Jay were correct when they proposed the federal government to serve the national interest of every American. Even in the 18th century, when so much more of everyday life concerned local interest, the Federalists understood that parochial pressures would crush a republic.

Today, when so much of everyday life concerns the stream of interstate commerce, we should not reject the tools given to us by those Federalist founders. The Anti-Federalists who argued for state supremacy in policymaking lost the debates on the Constitution.

The impact of commerce proves potent in public policy discussions whether one walks the sidewalks of Wall Street or Main Street. Another lesson learned in The Flood Zone.

State data

In addition to local officials finding it difficult to make decisions that cost friends, neighbors, customers and relatives money, state governments fail to provide data that FEMA needs. Some state jurisdictions withhold data from FEMA, which the report cites as a negative impact on the flood program:

FEMA does not have ready access to data on substantial damage assessments outside of community assistance visits, which we noted above are FEMA’s primary mechanism for NFIP community oversight.

Missing goals

The GAO report also points to short-comings in the privatized approach to community outreach. FEMA contracts with a private firm to conduct the local interactions that prove so important to the success of the program; however, the GAO suggests that community visits lag behind agency goals:

From January 2008 through July 2019, FEMA met the five-year goal for 13% of high-risk communities in Florida and 5% of such communities in Texas. FEMA records also indicated that approximately 13% of high-risk communities in Florida and 31% in Texas did not receive a community assistance visit in that period. However, most high-risk communities in the two states were visited at some point during the overall time period. About 87% of high-risk communities in Florida and about 69% in Texas received at least one visit during that period.

Recommended reforms

In addition to the summarized reforms noted at the beginning of this column, the report communicates the following four recommendations:

  1. The Administrator of FEMA should assess different approaches, in addition to community assistance visits, for using existing resources to ensure communities’ compliance with NFIP requirements. This should include analyzing alternatives to community assistance visits.
  2. The Administrator of FEMA should identify appropriate steps to ensure it has complete, up-to-date, and reliable records of community assistance visits, including information on why some visit records remain open for a significant period of time.
  3. The Administrator of FEMA should ensure that communities are consistently collecting data on their substantial damage assessments and that FEMA has a way to readily access those data to evaluate community compliance with NFIP requirements for rebuilding substantially damaged properties.
  4. The Administrator of FEMA should clarify with NFIP communities its policies on sharing data on NFIP claims and provide such information to those communities as needed.

Agency concurrence

In a comment letter on the report, Jim H. Crumpacker, director of the Department of Homeland Security’s GAO-OIG Liaison Office, generally concurred with its recommendations. Director Crumpacker cited the recommendations’ aims to “limit future flooding on private and public structures.”

Mayor Otto and the Farmer did not file a comment letter, but they will still have their say. Yup! Sure will.

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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