Policies and Insurance Amounts Increased, Premiums Decreased, and Losses Fluctuated from 1997 through 2006 with Hurricane Activities

Overall, data relating to the number of NFIP policies and amount of  insurance coverage indicated upward trends for the period we reviewed  and most losses were paid for hurricane-related claims, primarily due to  losses from the 2005 hurricane season. The number of policies in force  increased 36 percent and the average amount of coverage increased 78  percent from 1997 through 2006, consistent with average rising home  values. Over this period, total losses fluctuated from a  low of $302 million in 2000 to a high of $2 billion in 2004 before reaching  more than $17.7 billion in 2005. For 2005, as a result of the Gulf  Coast hurricanes, FEMA paid out more than $17.7 billion in losses. From 1997 through 2006, 79 percent of the funds paid out in losses were  for hurricane-related claims, but the percentages in individual years varied  widely (correlating to hurricane activity). Funding for Mitigation Programs Has Increased, but FEMA Cannot Readily Track Real-time Property Acquisitions

Funding for NFIP mitigation programs that can be used to acquire  properties that are at risk of repetitive flooding has increased from 1997  through 2006, but FEMA’s ability to track the effectiveness of these  programs is limited because it does not track property acquisitions real  time. However, FEMA headquarters cannot reliably account for the actual  number of properties acquired because it does not collect data on  individual acquisitions until a project closes, and no mixed mitigation  projects have been reported as closed since 1999. According to FEMA officials, the data on property acquisitions are limited  because they include only data for completed, or closed, projects. The lack of an  explicit requirement for FEMA regional offices to record property  acquisitions data in a consistent and timely manner hinders FEMA’s ability  to account for the extent to which flood-damaged and repetitive loss  properties have been acquired through its mitigation programs (thereby  decreasing the inventory of these properties). While FEMA relies upon  contractors to implement the NFIP, our review of FEMA’s monitoring  documentation for the BSA contract showed that FEMA did not  consistently follow its own monitoring procedures for preparing,  maintaining, and reviewing monitoring reports, and was unable to provide  copies of the majority of the monitoring reports we requested. Moreover,  key FEMA offices that have responsibilities for addressing contractor  deficiencies did not coordinate information and actions related to  deficiencies identified for the BSA and DSA contractors. As a result, FEMA  could not ensure adherence to contract requirements and lacked  information critical for effective oversight on key NFIP contractors. In March 2008, FEMA provided GAO with a set of contract monitoring  procedures that are applicable to all Risk-Insurance NFIP contracts that  have performance requirements. Federal  standards for internal control call for appropriate documentation of  significant events. Given the reliance of NFIP upon contractors,  poor contractor performance could diminish the overall quality of program  operations and management. Appendix I: Objectives, Scope, and Methodology

Our objectives were to (1) describe trends for National Flood Insurance  Program (NFIP) policies, insurance amounts, premiums, and losses from  1997 through 2006 and the extent to which NFIP losses were attributable  to hurricanes and repetitive loss properties; (2) assess how the amounts  available for the purchase of flood-damaged properties changed over time,  and the extent to which the Federal Emergency Management Agency  (FEMA) purchased flood-damaged properties; and (3) evaluate the extent  to which FEMA followed its procedures for monitoring selected NFIP- related contracts. FEMA  officials also stated that because not all properties approved for  acquisition are ultimately acquired, it may take several years for a project  to close. The average amount of flood insurance purchased gradually increased in  the high risk and moderate- to low-risk zones from 1997 through 2006 (see  fig. Repetitive loss  properties are those with two or more flood insurance claims filed against  them in a 10-year period.
Why GAO Did This Study

The Federal Emergency Management Agency (FEMA) and its contractors administer and implement the National Flood Insurance Program (NFIP). GAO designated NFIP as a high-risk area in March 2006, and as of December 2007, FEMA owed more than $17.3 billion to the Treasury for hurricane-related losses. Concerns have been raised about the financial condition of NFIP and FEMA's efforts to mitigate losses and monitor NFIP contractors. This report (1) describes statistical and financial trends for NFIP from 1997 through 2006, (2) assesses the extent to which flood-damaged properties were purchased to mitigate risk, and (3) evaluates procedures for monitoring NFIP-related contracts. For this study, GAO analyzed financial and statistical data on the NFIP and its mitigation programs, reviewed documentation of contract monitoring activities, and interviewed FEMA officials and contractors.

What GAO Found

The number of federal flood insurance policies in force nationwide increased 36 percent from 1997 through 2006, but most homeowners at risk of flooding still lacked such insurance. While average insurance amounts (per policy) increased 78 percent from 1997 through 2006--consistent with rising home values--the average premium decreased 3 percent from 1997 through 2006, likely driven in part by the increase in policies sold in moderate- to low-risk areas. Conversely, loss amounts fluctuated by year, peaking at more than $17.7 billion in 2005. Seventy-nine percent of the funds paid out through NFIP from 1997 through 2006 were for hurricane-related claims, but the percentages in individual years varied widely (correlating with hurricane activity). Finally, the extent of claim payments attributed to repetitive loss properties (those with two or more claims in a rolling 10-year period) increased from 1997 through 2006, from $3.7 billion to nearly $8 billion, with the most significant increases resulting from the 2005 Gulf Coast hurricanes. Because of data limitations, GAO was not able to determine the actual number of properties acquired through FEMA mitigation programs, which are intended to minimize the damage and financial impact of floods. Information on completed mitigation projects (which encompass multiple properties) indicates that about one-third of properties approved for acquisition from 1997 to 2006 were acquired. However, these data are limited because they do not include a count of properties acquired in ongoing projects. Projects may take several years to complete, and FEMA does not report properties acquired until a project is complete. Further, FEMA collected property acquisition data (for completed projects) in an ad hoc manner because FEMA's grants management system lacks the capability to record acquisition data. As a result, FEMA cannot readily determine the extent to which flood-damaged and repetitive loss properties have been acquired through its mitigation programs. Lack of monitoring records, inconsistent application of procedures, and lack of coordination have diminished the effectiveness of FEMA monitoring of NFIP-related contracts. While federal internal control standards state that records should be properly maintained, FEMA did not consistently follow its monitoring procedures for preparing or maintaining monitoring reports and was unable to provide copies of the majority of monitoring reports GAO requested. Further, FEMA offices did not coordinate information and actions relating to contractor deficiencies and payments. In some cases, key officials were unaware of decisions on contractor performance. As a result, FEMA cannot consistently ensure adherence to contract requirements and lacks information critical for effective oversight of key contractors. Given the reliance of NFIP upon contractors, it is important that FEMA have in place adequate controls that are consistently applied to all contracts.