Congress reinstated the National Flood Insurance Program Monday. But the beleaguered plan is more than $18 billion in debt, and a strategy to put the program back on an even keel seems nearly unreachable.
According to a Government Accountability Office report released Wednesday, the NFIP is not “actuarially sound” and suffers from operational issues as well. The program, which was created in 1968 to fill gaps in private sector flood insurance, is poorly structured for providing coverage, the report stated.
“NFIP cannot do some of the things that private insurers do to manage their risks,” according to the report summary. “For example, NFIP is not structured to build a capital surplus, is likely unable to purchase reinsurance to cover catastrophic losses, cannot reject high-risk applicants, and is subject to statutory limits on rate increases. In addition, its premium rates do not reflect actual flood risk.”
Even so, a recent 18-day funding lapse that closed NFIP offices, leaving hundreds in home-buying limbo, highlighted the need for some sort of stopgap flood coverage. Sen. Byron Dorgan of North Dakota estimated that 1,400 prospective homeowners a day couldn’t close on mortgages without access to the NFIP, according the Associated Press.
The Federal Emergency Management Agency, which operates the program, has made improvements, according to congressional testimony given by FEMA Administrator Craig Fugate Wednesday. Among the advances he cited were the creation of an NFIP Reform Working Group, an extensive update of the nation’s flood insurance rate maps, and a push for community awareness and participation.
We learned two very valuable things from the [NFIP Reform Group] listening sessions,” Fugate stated in the testimony. “First and foremost, we learned that the NFIP still provides an essential service to the American people that would be otherwise unavailable or unaffordable. Second, we confirmed that the NFIP requires meaningful reform.”
The GAO recommends that those reforms include stepping up rates to reflect risks and providing more oversight of companies that sell flood policies. The current NFIP funding extension is set to expire again on May 31.
Jolie Breeden is the lead editor and science communicator for Natural Hazards Center publications. She writes and edits for Research Counts; the Quick Response, Mitigation Matters, Public Health, and Weather Ready Research Award report series; as well as for special projects and publications. Breeden graduated summa cum laude from the University of Colorado Boulder with a bachelor’s degree in journalism.