Report reveals affordability challenges with FEMA’s flood insurance program

WASHINGTON D.C. — We are two months into hurricane season and that means many property owners in some parts of the country are bracing for potential heavy flooding.

Now a new watchdog report is revealing the federal government’s flood insurance program isn’t affordable for some people who need it.

The report from the U.S. Government Accountability Office (GAO) looked at FEMA’s National Flood Insurance Program (NFIP).

“The main thing that needs to be addressed is still the affordability issue and that’s something that FEMA can’t do on its own,” said Alicia Puente Cackley, a Director in GAO’s Financial Markets and Community Investment team.

“If affordability needs are not addressed effectively, more policyholders could drop coverage, leaving them unprotected from flood risk and more reliant on federal disaster assistance,” the report said.

The findings explain that some policyholders may have seen their premiums go up or change because of a rate system change FEMA made in 2021.

That change was made in an effort for FEMA to better align premiums with risk, and to catch up with the cost of claims since the program was deeply in debt.

Before FEMA implemented a new methodology for setting premiums for the NFIP, previous premiums did not always fully reflect the flood risk and led to insufficient funds to pay out claims, which led FEMA to borrow billions of dollars from the Treasury Department.

“What FEMA has done has been a good step in the right direction of making the program more solvent because it’s very in debt at the moment and more actuarially sound but there’s more that needs to be done to really complete the process and some of that are steps that Congress needs to take as well as other steps that FEMA still needs to take,” said Cackley.

The report calls on Congress to create a means-based assistance program to help people keep up with cost.

There is now a proposal in Congress that reflects this change and would assist low and moderate-income property owners who take part in the NFIP.

“So that people’s rates truly reflect the risk of the property, but they are still able to afford them by getting assistance, those who need it,” said Cackley.

The report also calls on FEMA to take steps to improve communication to make sure people fully understand their flood risk and insurance cost.

In response, FEMA said it agrees with the recommended changes.

“The Department remains committed to achieving an equitable NFIP and has proposed legislation to… make flood insurance more affordable to low- and moderate-income policyholders,” FEMA wrote in its response.

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