The financial viability of the federal flood insurance program is threatened by insufficient subsidized rates, said a top official of the U.S. Government Accountability Office last week.
William Jenkins, GAO director of homeland security and justice issues, told the Senate Banking Committee that the National Flood Insurance Program does not collect sufficient premium to build reserves necessary for meeting long-term flood loss claims.
He said that while FEMA has kept the program on a sound financial footing so far, the catastrophic flooding of 2004 required the program to borrow $300 million from the Treasury to meet claims.
Properties that suffered repeated losses but pay subsidized insurance rates constitute one percent of all lands insured under the NFIP but account for 25 percent to 30 percent of all losses, Mr. Jenkins said.
The Flood Insurance Reform Act of 2004 established a pilot program requiring owners of so-called repetitive-loss properties to elevate, relocate or demolish houses. "Future studies of the NFIP should analyze the progress made to reduce the inventory of subsidized repetitive-loss properties, and determine whether any additional regulatory or congressional action is needed," he said.
Mr. Jenkins said that in the long term Congress and the NFIP face unusual challenges to reform the program to maintain its fiscal soundness.
Increasing participation in the program, along with reducing the number of repetitive loss properties should top the priority list, Mr. Jenkins told the senators.
"These issues are complex, interrelated and likely to involve tradeoffs," he said.
For example, raising premium to better reflect increased risk could reduce voluntary participation and, in turn, increase taxpayer exposure to floods.
"There is no 'silver bullet' for improving the current structure and operation of the NFIP," Mr. Jenkins said. "It will require sound data and analysis and the cooperation and participation of many stakeholders."
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