GAO: Flood Program Lacks Funds to Face Future
The National Flood Insurance Program owes the federal Treasury more than $17 billion from hurricane-related losses and has been unable to set aside enough money to meet catastrophic losses that could arise in the future, congressional investigators said in a report released this week.
The Government Accountability Office wrote in a letter to U.S. Sen. Richard Shelby, R-Ala., that it is “unlikely” that the flood insurance program could cover expected future losses, given the billions of dollars borrowed to cover flood claims arising from a series of hurricanes in 2005.
The letter to Shelby, the ranking member of the Senate Banking, Housing and Urban Affairs Committee, accompanied the lengthy report.
Butch Kinerney, a spokesman for the flood insurance program, said it still has about $3 billion in borrowing authority and that is enough to cover most future events. In 2005, hurricanes Katrina, Rita and Wilma hit, and the program handled an outpouring of claims.
GAO, citing testimony by a FEMA official, said Katrina-related claims alone surpassed the aggregate amount of claims in the program’s nearly 40-year history by more than $1 billion.
The report comes as reauthorization of the flood insurance program looms in Congress. Both houses have passed reform measures, with major differences in House and Senate versions.
The House version, for example, would allow for wind coverage, a huge change for the existing program and one, Kinerney said, that has drawn strong opposition from the Bush administration. The Senate version would forgive the program’s debt.
Sen. Mary Landrieu, D-La., said she supports creating an ombudsman to audit insurers that sell, market and otherwise handle policies through the program. “It is my hope that the final package will strengthen the program without forcing Louisianans to shoulder the bulk of premium increases,” she said.
It’s not clear yet how premiums might be affected. The next step would appear to be a conference committee of House and Senate members.
The program was created in 1968 with the intention of both providing people with some protection when private insurers were unwilling to take the economic risk and creating incentives for communities to take steps to reduce flood damage, the report said.
GAO also found that while the number of federal flood insurance policies nationally rose from 1997 to 2006, most homeowners at risk of flooding didn’t have such insurance. It questioned the Federal Emergency Management Agency’s ability to effectively oversee contractors it works with to implement the program.
GAO said FEMA “generally concurred” with its recommendations and said it had taken steps to address contract monitoring. Kinerney agreed efforts were being made to strengthen oversight.