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National Flood Insurance Program could use a bridge over troubled waters.
By Insure.com staff

The National Flood Insurance Program (NFIP) probably won't generate enough revenue to repay the billions of dollars it borrowed from the U.S. Treasury Department to cover claims from the 2005 hurricanes or future catastrophic losses, the Government Accountability Office (GAO) said in a report released Feb. 16.

The NFIP, managed by the Federal Emergency Management Agency (FEMA), is designed to protect the nation against the financial impact of catastrophic flood damage. Homeowners are required to purchase flood insurance through the program if they live in a flood-prone area. Standard home insurance does not cover floods.

"The lack of sufficient revenues highlights structural weaknesses in how the program is funded," the GAO report says. "Also, weaknesses in NFIP management and operations, including financial reporting processes and internal controls, and oversight of contractors place the program at risk."

Policyholder premiums are supposed to pay for the program, but insurance rates don't reflect actual flood risk.

"The program is, by design, not actuarially sound," the report said.

Although FEMA has addressed some of these issues, such as increasing the number of policyholders and increasing oversight of new contractors, Congress must restructure the program, according to the GAO. The program has operated under a series of temporary extensions in recent years, as Congress debated how to reform the program.






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