As of May 2006, the NFIP had paid about 162,000 claims for losses from  flood damage from Hurricane Katrina in Alabama, Florida, Louisiana, and  Mississippi. The majority of Hurricane Katrina and Rita paid losses were for flood  damage to residences. Building only (3,620)
Building and contents (4,264)

	FEMA and Private Sector NFIP Partners Were Challenged to Process a Record Number of Claims and Address the Needs of NFIP Claimants and Communities

The magnitude and severity of the damages from Hurricane Katrina closely  followed by Hurricane Rita presented FEMA and its private sector NFIP  partners with challenges to accurately process a record number of flood  claims in a timely manner under adverse conditions and address other  needs of NFIP claimants and communities. By May 2006, about 9 months after the  storms, FEMA reported that over 95 percent of the Gulf Coast claims were  closed. These time frames for closing claims are comparable to time  frames for closing claims in other, smaller flood events. Because FEMA did not reinspect a  random sample of all claims closed, as we recommended in October 2005,  the results of the reinspections cannot be projected to a population larger  than the 4,316 claims reinspected. General Adjusters and Disaster Analysts Did Quality Reinspections of About 2.5 Percent of All Claims and Additional Reinspections of Claims Adjusted Using Expedited Processes

To determine whether claims were correctly adjusted by the large cadre of  adjusters deployed after Hurricanes Katrina and Rita, FEMA’s program  contractor conducted quality assurance reinspections of 4,316 Hurricane  Katrina and Rita claims conducted from January to September 2006. Quality Reinspection Program Does Not Rely on a Statistically Valid Sampling Methodology

FEMA did not adopt our October 2005 recommendation that it select the  claims to be reinspected in its quality reinspection program using a  random sample of the population of all claims. FEMA has fully  implemented the first two requirements to establish notifications on  coverage to policyholders and an appeals process for claimants. Some States Have Established Minimum Education and Training Requirements

With respect to the requirement that FEMA establish minimum education  and training requirements for agents who sell NFIP policies, the Flood  Insurance Reform Act of 2004 requires FEMA, in cooperation with the  insurance industry, state insurance regulators, and other interested  parties, to establish minimum training and education requirements for all  insurance agents who sell flood insurance policies and to publish the  requirements in the Federal Register. FEMA made progress in implementing provisions of the Flood Insurance  Reform Act of 2004. Recommendation for Executive Action

To strengthen and improve FEMA’s monitoring and oversight of the NFIP,  including ensuring that claims payments are accurately determined, we are  recommending that for future flood events when FEMA implements our  prior recommendation to do quality assurance reinspections of a  statistically valid sample of claims adjustments, the Secretary of the  Department of Homeland Security also direct the Under Secretary of  Homeland Security, FEMA, to take the following action:    Analyze the overall results of claims adjustments done for each  future flood events to determine the number and type of claims  adjustment errors made and to help determine whether new,  cost-efficient methods for adjusting claims that were  introduced after Hurricane Katrina are feasible to use after  other flood events. Appendix I: Scope and Methodology

To describe the impact of Hurricanes Katrina and Rita on the National  Flood Insurance Program (NFIP) and the extent of the losses paid by  location and property type, we reviewed congressional actions to increase  the NFIP borrowing authority, and we interviewed the Director, Deputy  Director, and other officials of the Federal Emergency Management  Agency’s (FEMA) Mitigation Division on the actions they took to estimate  the amount of funds they needed to borrow from the U.S. Treasury to  cover claims from Hurricanes Katrina and Rita and other 2006 flood  events.
Why GAO Did This Study

In August and September 2005, Hurricanes Katrina and Rita caused unprecedented destruction to property along the Gulf Coast, resulting in billions of dollars of damage claims to the National Flood Insurance Program (NFIP). This report, which we initiated under the authority of the Comptroller General, examines (1) the impact of Hurricanes Katrina and Rita on the NFIP and paid losses by location and property type; (2) the challenges the Federal Emergency Management Agency (FEMA) and others faced in addressing the needs of NFIP claimants and communities; (3) FEMA's methods of monitoring and overseeing claims adjustments; and (4) FEMA's efforts to meet the requirements of the Flood Insurance Reform Act of 2004 to establish policyholder coverage notifications, an appeals process for claimants, and education and training requirements for agents. To conduct these assessments, GAO interviewed FEMA and insurance officials, analyzed claims data, and examined a sample of reports done on the accuracy of claims adjustments.

What GAO Found

NFIP paid an unprecedented dollar amount for a record number of claims from Hurricanes Katrina and Rita. Congress increased NFIP's borrowing authority with the U.S. Treasury from a pre-Katrina level of $1.5 billion to about $20.8 billion in March 2006, but FEMA will probably not be able to repay this debt on annual premium revenues of about $2 billion. As of May 2006, NFIP had paid approximately 162,000 flood damage claims from Hurricane Katrina and another 9,000 claims from Hurricane Rita. Most paid claims were for primary residences where flood insurance was generally required. FEMA and its private sector partners faced several challenges in processing a record number of flood claims from Hurricanes Katrina and Rita, among them were (1) reaching insured properties in a timely way because of blocked roadways and flood water contamination and (2) identifying badly damaged homes to be inspected in locations where street signs had washed away. Despite these and other obstacles, FEMA reported that over 95 percent of Gulf Coast claims had been closed by May 2006, a time frame comparable to those for closing claims in other, smaller recent floods. To help keep pace with the volume of claims filed, FEMA approved expedited methods for claims processing that were unique to Hurricanes Katrina and Rita. To provide oversight of the claims adjustment process, FEMA's program contractor did quality assurance reinspections of Hurricane Katrina and Rita claims adjustments. FEMA did not adopt our October 2005 recommendation that it select the claims to be reinspected from a random sample of the universe of all closed claims; thus, the results of the reinspections cannot be projected to a universe larger than the 4,316 claims adjustments that were reinspected. FEMA agrees with our prior recommendation and plans to do quality reinspections in future flood events based on a random sample of all claims. FEMA did not analyze the overall results of the quality reinspections for Hurricanes Katrina and Rita. FEMA has made progress but has not fully implemented the NFIP program changes mandated by the Flood Insurance Reform Act. For example, 15 states had adopted minimum education and training requirements for insurance agents who sell NFIP policies, as of October 2006.