GAO: National Flood Insurance Program Is a Mess

Future remains unclear despite calls from financial trade groups for long-term solution.

The National Flood Insurance Program is a mess, the Government Accountability Office (GAO) said last week.

The program owes $20.5 billion to the federal government and “has no realistic prospect of repaying the debt as currently structured,” according to a GAO congressional report. And so far, Congress has been unwilling to cancel this debt, which would leave taxpayers holding the bill.

The program provides financial help to pay premiums to some people—some of whom do not need it.

Conversely, some of the people who do need help paying premiums never receive it.

And yet, as with many issues, Congress has been unable to fix the program and instead has funded and reauthorized it in a series of short-term end-of-year measures attached to other must-pass legislation.

Difficulty Finding a Consensus

Regional differences are causing some of the problems. No fewer than 18 bills have been introduced in the House and Senate this year proposing changes to the program.

Financial services trade groups and others have called for a long-term fix to the program, all to no avail.

Meanwhile, the program lurches along, the report says. Certain changes, known as Risk Rating 2.0, have been implemented, but they have not solved the issues. For instance, some of the states with the lowest premiums are the most flood-prone.

“Discounted premiums are not tied to a policyholder’s ability to pay, in terms of both the amount of the discounts and who receives them,” the GAO stated. “As a result, some policyholders who do not need assistance are likely still receiving it (or are receiving more than they need), thus unnecessarily increasing fiscal exposure.”

Recommendations to Congress

In its report, the GAO suggested that Congress institute “means testing,” in which needy property owners would receive assistance in paying their premiums, while those who can afford their premiums would not get such assistance.

“Addressing affordability through a means-based assistance program that is recognized in the federal budget, rather than through discounted premiums, could make the premium shortfall costs transparent and could lessen the need for large program borrowing in the future,” the report reads. “It could also improve Congress’s ability to oversee the program and the public’s ability to scrutinize it.”

Means testing has been discussed among members of Congress, but has not gotten anywhere, as an overhaul of the NFIP remains stalled.

The GAO also warned that if affordability issues are not effectively addressed, more policyholders might drop coverage, making them more reliant on federal disaster assistance.