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entitled 'Flood Insurance: Forgone Premiums Cannot Be Measured and 
FEMA Should Validate and Monitor Data System Changes' which was 
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United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

December 2014: 

Flood Insurance: 

Forgone Premiums Cannot Be Measured and FEMA Should Validate and 
Monitor Data System Changes: 

GAO-15-111: 

GAO Highlights: 

Highlights of GAO-15-111, a report to congressional committees. 

Why GAO Did This Study: 

As of September 30, 2013, FEMA, which administers NFIP, had more than 
1.1 million subsidized flood insurance policies-—about 21 percent of 
all of its policies. Because their premiums do not reflect the full 
risk of losses, subsidized policies have been a financial burden on 
the program. Due to NFIP's financial instability and operating and 
management challenges, GAO placed the program on its high-risk list in 
2006. The Biggert-Waters Act mandated GAO to report on the forgone 
premiums from subsidies in NFIP. 

This report examines the forgone premiums associated with subsidies 
during 2002–2013 along with data reliability issues discovered in 
GAO's examination. Data for earlier periods were unavailable. GAO analyzed 
NFIP premium data, published statements about the size of the 
subsidies, and expenses associated with premiums. GAO also interviewed 
FEMA officials. 

What GAO Found: 

The actual forgone premiums—the difference between subsidized and full-
risk premiums—-to the National Flood Insurance Program (NFIP) due to 
subsidies cannot be measured. The Federal Emergency Management Agency 
(FEMA) does not collect flood risk information for all subsidized 
policies, which is needed to calculate their full-risk premium rates. 
GAO recommended in July 2013 that FEMA develop and implement a plan to 
obtain this information. FEMA agreed with the recommendation, but has 
not yet fully implemented it. Although FEMA is phasing out subsidies 
through statutorily required rate increases, collecting this 
information remains important because the number of subsidized 
policies-—and associated financial impacts-—could grow over time with 
the restoration of certain subsidies under the Homeowner Flood 
Insurance Affordability Act of 2014 that previous legislation had 
eliminated. Working with available data and FEMA's published 
statements describing the size of the subsidies, GAO estimated forgone 
premiums in the range of $16–25 billion for 2002–2013 but estimates 
vary based on the calculation used. As FEMA would have incurred 
additional expenses if it had been able to collect the forgone 
premiums, GAO estimated that FEMA might have had $11–17 billion in 
premiums net of expenses, or as much as $1 billion a year, for losses 
or debt repayment. 

Figure: Estimated Range of National Flood Insurance Program (NFIP) 
Premiums Forgone during 2002-2013, in 2014 Dollars: 

[Refer to PDF for image: stacked vertical bar graph] 

Year: 2002: 

Low; 
Collected Premiums: $0.9 billion; 
Estimated forgone premiums net of expenses: $0.8 billion; 
Estimated forgone premiums for expenses: $0.4 billion. 

High; 
Collected Premiums: $0.9 billion; 
Estimated forgone premiums net of expenses: $1.0 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

Year: 2003: 

Low; 
Collected Premiums: $0.9 billion; 
Estimated forgone premiums net of expenses: $0.8 billion; 
Estimated forgone premiums for expenses: $0.4 billion. 

High; 
Collected Premiums: $0.9 billion; 
Estimated forgone premiums net of expenses: $1.0 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

Year: 2004: 

Low; 
Collected Premiums: $1.0 billion; 
Estimated forgone premiums net of expenses: $0.9 billion; 
Estimated forgone premiums for expenses: $0.4 billion. 

High; 
Collected Premiums: $1.0 billion; 
Estimated forgone premiums net of expenses: $1.1 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

Year: 2005: 

Low; 
Collected Premiums: $1.0 billion; 
Estimated forgone premiums net of expenses: $1.0 billion; 
Estimated forgone premiums for expenses: $0.4 billion. 

High; 
Collected Premiums: $1.0 billion; 
Estimated forgone premiums net of expenses: $1.2 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

Year: 2006: 

Low; 
Collected Premiums: $1.2 billion; 
Estimated forgone premiums net of expenses: $1.1 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

High; 
Collected Premiums: $1.1 billion; 
Estimated forgone premiums net of expenses: $1.1 billion; 
Estimated forgone premiums for expenses: $0.6 billion. 

Year: 2007: 

Low; 
Collected Premiums: $1.2 billion; 
Estimated forgone premiums net of expenses: $1.1 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

High; 
Collected Premiums: $1.2 billion; 
Estimated forgone premiums net of expenses: $1.4 billion; 
Estimated forgone premiums for expenses: $0.6 billion. 

Year: 2008: 

Low; 
Collected Premiums: $1.3 billion; 
Estimated forgone premiums net of expenses: $1.2 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

High; 
Collected Premiums: $1.3 billion; 
Estimated forgone premiums net of expenses: $1.5 billion; 
Estimated forgone premiums for expenses: $0.6 billion. 

Year: 2009: 

Low; 
Collected Premiums: $1.3 billion; 
Estimated forgone premiums net of expenses: $1.2 billion; 
Estimated forgone premiums for expenses: $0.6 billion. 

High; 
Collected Premiums: $1.3 billion; 
Estimated forgone premiums net of expenses: $1.5 billion; 
Estimated forgone premiums for expenses: $0.7 billion. 

Year: 2010: 

Low; 
Collected Premiums: $1.4 billion; 
Estimated forgone premiums net of expenses: $1.3 billion; 
Estimated forgone premiums for expenses: $0.6 billion. 

High; 
Collected Premiums: $1.4 billion; 
Estimated forgone premiums net of expenses: $1.6 billion; 
Estimated forgone premiums for expenses: $0.7 billion. 

Year: 2011: 

Low; 
Collected Premiums: $1.4 billion; 
Estimated forgone premiums net of expenses: $1.1 billion; 
Estimated forgone premiums for expenses: $0.4 billion. 

High; 
Collected Premiums: $1.4 billion; 
Estimated forgone premiums net of expenses: $1.4 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

Year: 2012: 

Low; 
Collected Premiums: $1.4 billion; 
Estimated forgone premiums net of expenses: $1.1 billion; 
Estimated forgone premiums for expenses: $0.4 billion. 

High; 
Collected Premiums: $1.4 billion; 
Estimated forgone premiums net of expenses: $1.3 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

Year: 2013: 

Low; 
Collected Premiums: $1.6 billion; 
Estimated forgone premiums net of expenses: $1.0 billion; 
Estimated forgone premiums for expenses: $0.4 billion. 

High; 
Collected Premiums: $1.6billion; 
Estimated forgone premiums net of expenses: $1.2 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

Source: GAO analysis of FEMA data. GAO-151-111. 

[End of figure] 

FEMA did not have sufficient controls or monitoring in place to 
validate system changes (made because of the Biggert-Waters Flood 
Insurance Reform Act of 2012 (Biggert-Waters Act)) before they became 
effective, and some premium data were unreliable. Federal internal 
control standards suggest that agencies have controls, such as 
validating implementation of changes, to help ensure the accuracy of 
transactions. A FEMA contracting handbook also calls for monitoring a 
contractor's progress toward completion of specified requirements. 
However, FEMA did not validate that its contractor fully implemented 
changes and system checks, or verify the changes in vendors' software, 
before program changes became effective in October 2013. FEMA's 
monitoring reports also did not capture critical information to 
oversee the contractor's progress toward completion of the required 
changes. As a result, premium data on policies GAO analyzed are 
unreliable in the time period studied, some policyholders were charged 
inaccurate rates, and the full extent of delays and errors went 
undetected for nearly a year. Without better monitoring and controls 
over future changes, FEMA risks further inaccuracies in its data 
system. 

What GAO Recommends: 

GAO recommends that FEMA institute controls to validate implementation 
of data system changes and track progress toward completion in its 
monitoring reports. GAO also maintains its position that a 
recommendation made in July 2013 [hyperlink, 
http://www.gao.gov/products/GAO-13-607] that FEMA develop and 
implement a plan to obtain flood-risk information needed to determine 
full-risk rates for properties with subsidized rates is valid and 
should be fully implemented. FEMA agreed with the new recommendations 
and discussed its approach for addressing the July 2013 recommendation. 

View [hyperlink, http://www.gao.gov/products/GAO-15-111]. For more 
information, contact Alicia Puente Cackley at (202) 512-8678 or 
cackleya@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

FEMA Lacks Data to Measure Forgone Premiums Accurately and Estimates 
Vary Widely: 

Fourth Estimation of Forgone Premiums Not Viable Due to Unreliable 
Premium Data and Insufficient Controls Surrounding Implementation of 
Data System Changes: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Department of Homeland Security: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Table: 

Table 1: Estimates of Forgone Premiums Associated with Subsidies, 
Forgone Premiums Net of Expenses, and Forgone Premiums for Expenses, 
2002-2013, in 2014 Dollars: 

Figures: 

Figure 1: Number of Total National Flood Insurance Program (NFIP) 
Policies and Number and Percentage of Policies That Were Subsidized, 
1978-2012: 

Figure 2: Total National Flood Insurance Program (NFIP) and Subsidized 
Premiums, in 2014 Dollars, and Percentage of Premiums That Were 
Subsidized, 1978-2012: 

Figure 3: Status of Pre-Flood Insurance Rate Map (FIRM) Subsidies 
under the Biggert-Waters Act and Homeowner Flood Insurance 
Affordability Act (HFIAA): 

Figure 4: Examples of How Many Years Might be Required for Subsidized 
Premium Rates for AE Flood Zones to Reach Full-Risk Rates (by Coverage 
Amount, Elevation, and Percentage of Annual Rate Increase): 

Figure 5: National Flood Insurance Program (NFIP) Projected Percentage 
of Premiums and Policy Fees Available for Losses and Expenses for 
Fiscal Year 2014: 

Figure 6: Percentage Change in Subsidized and Total National Flood 
Insurance Program (NFIP) Policies, 1978-2012: 

Figure 7: Estimated Aggregate National Flood Insurance Program (NFIP) 
Premiums in 2002-2013 Had Subsidies Been Eliminated, in 2014 Dollars: 

Figure 8: Estimated Full-Risk Premiums for Subsidized Policies in 2002-
2013, in 2014 Dollars: 

Figure 9: Estimated Forgone Premiums in 2002-2013, by Subsidy 
Category, in 2014 Dollars: 

Abbreviations: 

BFE: base flood elevation: 

CRS: Community Rating System: 

DHS: Department of Homeland Security: 

FEMA: Federal Emergency Management Agency: 

FIRM: Flood Insurance Rate Map: 

GDP: gross domestic product: 

HFIAA: Homeowner Flood Insurance Affordability Act of 2014: 

ICC: Increased Cost of Compliance: 

LIDAR: Light Detection and Ranging: 

NFIP: National Flood Insurance Program: 

PwC: PricewaterhouseCoopers LLP: 

SFHA: Special Flood Hazard Areas: 

WYO: Write-Your-Own: 

[End of section] 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548: 

December 11, 2014: 

The Honorable Tim Johnson: 
Chairman: 
The Honorable Mike Crapo: 
Ranking Member: 
Committee on Banking, Housing and Urban Affairs: 
United States Senate: 

The Honorable Jeb Hensarling: 
Chairman: 
The Honorable Maxine Waters: 
Ranking Member: 
Committee on Financial Services: 
House of Representatives: 

As of September 30, 2013, the Federal Emergency Management Agency 
(FEMA) had more than 1.1 million--about 21 percent--of its National 
Flood Insurance Program (NFIP) policies sold at discounted rates 
(subsidized rates) that did not fully reflect the actual risk of flood 
damage. The National Flood Insurance Act of 1968 authorized subsidized 
rates to encourage community and property owner participation in NFIP. 
[Footnote 1] Generally, subsidized policies cover properties in high-
risk locations that otherwise would have been charged higher premiums 
and were built before Flood Insurance Rate Maps (FIRM) became 
available and the flood risk was clearly understood. Subsidized 
premiums help achieve a program goal of promoting participation in the 
program but do not contribute sufficient revenues to cover long-term 
expected losses. As a result, policies receiving subsidized rates have 
been a financial burden on NFIP, and the program is not actuarially 
sound.[Footnote 2] Since 2000, NFIP also experienced several years 
with catastrophic losses ($1 billion or more) and borrowed money from 
the Department of the Treasury (Treasury) to cover claims. As of 
September 30, 2014, FEMA owed Treasury $24 billion and had not repaid 
any principal on its loans since 2010. In September 2014, FEMA's 
largest loan from Treasury was refinanced into three smaller loans 
with higher interest rates, and FEMA will have higher interest 
payments on its debt. As a result of the program's importance, level 
of indebtedness to Treasury, substantial financial exposure for the 
federal government and taxpayers, and FEMA's operating and management 
challenges, NFIP has been on our high-risk list since 2006.[Footnote 3] 

The Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters 
Act) and the Homeowner Flood Insurance Affordability Act of 2014 
(HFIAA) introduced many changes to NFIP. In particular, the Biggert-
Waters Act phased out and eliminated subsidized premium rates for 
several types of properties.[Footnote 4] As mandated by the Biggert-
Waters Act, FEMA has begun phasing out subsidies on policies for 
business properties, residential properties that are not primary 
residences, and single-family properties with severe repetitive 
losses.[Footnote 5] Additionally, on October 1, 2013, FEMA began 
prohibiting subsidies from being passed to new property owners and 
removed them if insurance coverage lapsed as a result of the 
policyholders' deliberate choice. HFIAA, which became law in March 
2014, repeals or alters portions of the Biggert-Waters Act.[Footnote 
6] For example, HFIAA permits certain subsidies to carry over to new 
property owners and allows them to continue after a lapse in insurance 
coverage for certain reasons. HFIAA did not stop the phasing out of 
subsidies on policies for nonprimary residences, severe repetitive 
loss properties, and businesses. FEMA plans to continue to phase out 
subsidized rates for these policies with 25 percent annual increases. 
Under HFIAA, FEMA also generally must increase premium rates on other 
subsidized policies by 5-15 percent annually. 

The Biggert-Waters Act mandated that we conduct a number of studies, 
including a study on the properties that continue to receive 
subsidized rates after the implementation of the act.[Footnote 7] This 
report estimates NFIP forgone premiums for subsidized properties in 
2002-2013.[Footnote 8] In addition, it examines issues we identified 
surrounding modifications made to FEMA's data system to implement 
changes required under the Biggert-Waters Act. 

To address these objectives, we analyzed FEMA data on NFIP flood 
insurance policies, program expenses, and estimates of long-term 
losses covered by subsidized premiums as well as information on its 
policy rating methodology. We used policy data from 2002 through 2013 
to determine the number and associated premiums of the subsidized 
policies and applied FEMA's published statements describing the size 
of the subsidies and expenses to estimate forgone premiums and forgone 
premiums net of program expenses.[Footnote 9] We assessed the 
reliability of the policy and expense data by gathering and analyzing 
available information about how the data were created and maintained 
and performed electronic tests of required data elements. We 
determined that the data were sufficiently reliable for the purposes 
of determining the number of subsidized policies and the associated 
premiums. FEMA officials stated that their statements about the size 
of the subsidy should not be considered definitive or precise. 
However, because FEMA officials said that these statements were the 
only information available on the size of the subsidy, we used them in 
three different calculations to estimate forgone premiums, added 
caveats to our estimates, and noted the limitations of using them. 
Using FEMA's tables for generating NFIP premium rates published on 
June 26, 2014, we also generated examples of how many years it might 
take for subsidized premium rates to reach full-risk rates. 
Additionally, we attempted to use policy data from 2014 and FEMA's 
policy rating methodology in a fourth estimation of forgone premiums. 
We attempted to calculate subsidized premiums for primary residential 
policies that would have qualified for subsidies before the Biggert-
Waters Act to compare them with the full-risk premiums actually paid 
after the Biggert-Waters Act changes were effective. However, we 
identified a number of discrepancies in the data and determined that 
they were not sufficiently reliable to be used for this analysis. We 
also assessed contract documentation and monitoring processes and 
reports against federal internal control standards. We reviewed recent 
NFIP legislation and examined FEMA's implementation of legislative 
requirements authorizing subsidized rates for certain properties in 
high-risk locations. We interviewed FEMA officials. See appendix I for 
more details about our scope and methodology. 

We conducted this performance audit from May 2014 to December 2014 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Background: 

In 1968, Congress created NFIP to address the increasing cost of 
federal disaster assistance by providing flood insurance to property 
owners in flood-prone areas, where such insurance was either not 
available or prohibitively expensive.[Footnote 10] The 1968 law 
authorized subsidies to encourage community and property owner 
participation. To participate in the program, communities must adopt 
and agree to enforce floodplain management regulations to reduce 
future flood damage. In exchange, NFIP makes federally backed flood 
insurance available to homeowners and other property owners in these 
communities. 

Since NFIP was established, Congress has enacted legislation to 
strengthen certain aspects of the program. For example, the Flood 
Disaster Protection Act of 1973 made the purchase of flood insurance 
mandatory for properties in Special Flood Hazard Areas (SFHA)--areas 
at high risk for flooding--that are secured by mortgages from 
federally regulated lenders and located in NFIP participating 
communities.[Footnote 11] This requirement expanded the overall number 
of insured properties, including those that qualified for subsidized 
premiums. The National Flood Insurance Reform Act of 1994 expanded the 
purchase requirement for federally backed mortgages on properties 
located in an SFHA.[Footnote 12] 

FEMA bases premium rates for NFIP policies on a property's risk of 
flooding and other factors. FEMA studies and maps flood risks, 
assigning flood zone designations from high to low depending on the 
risk of flooding. For example, SFHAs are high-risk areas that have a 1 
percent or greater annual chance of flooding and are designated as 
zones A, AE, V, or VE. Areas designated as V or VE are located along 
the coast and are at risk of 3 foot or higher breaking waves. Areas 
designated as A or AE can be located along the coast or inland. Zones 
B, C, or X are areas with a moderate-to-low risk for flooding. Zone D 
denotes areas for which flood risk analysis has not been conducted. 
FEMA also uses property characteristics in setting premium rates, such 
as elevation of the property relative to the property's base flood 
elevation (BFE)--the level relative to mean sea level at which there 
is a 1 percent or greater chance of flooding in a given year--and 
building type (residential or nonresidential). Additionally, FEMA uses 
policy characteristics in setting premium rates, such as coverage and 
policy deductible amounts. 

NFIP has two types of premium rates: those that reflect the full risk 
of flooding to the group of properties within a rate class (full-risk 
rates) and those that do not reflect full risk (subsidized rates). 
[Footnote 13] The largest number of subsidized policies has been for 
properties built before FIRMs became available.[Footnote 14] Even with 
highly discounted rates, subsidized premiums are, on average, higher 
than full-risk premiums. Full-risk rated structures have been built to 
flood-resistant building codes or have mitigated flood risks and 
generally are at or above BFE.[Footnote 15] However, FEMA can 
calculate full-risk rates for structures that are up to 15 feet below 
BFE in A zones, and 10 feet below BFE in V zones. Pre-FIRM subsidized 
properties generally were not constructed according to the program's 
building standards or were built without regard to BFE. Therefore, 
subsidized structures generally are assumed to be more prone to 
flooding (that is, riskier) than other structures and premiums are 
higher, even with the subsidy. For example, according to FEMA's flood 
insurance manual effective October 1, 2014, the costs of building and 
contents coverage for subsidized policies in an AE zone were higher 
than coverage for a similar full-risk policy at 1 foot above BFE. 
[Footnote 16] 

Although the percentage of policies that is subsidized and percentage 
of premiums from these policies relative to all NFIP policies has 
decreased over time, the number of subsidized policies has not changed 
greatly. In 2012, subsidized policies accounted for about 20 percent 
of NFIP policies. From 1978 through 2012, the percentage of policies 
that was subsidized decreased because the number of total policies 
increased, but the numbers of subsidized policies stayed fairly 
constant (see figure 1). 

Figure 1: Number of Total National Flood Insurance Program (NFIP) 
Policies and Number and Percentage of Policies That Were Subsidized, 
1978-2012: 

[Refer to PDF for image: combined vertical bar and line graph] 

Year: 1978; 
Number of all policies: 1,446; 
Number of subsidized policies: 1,102; 
Percentage of policies that were subsidized: 76%. 

Year: 1979; 
Number of all policies: 1,843; 
Number of subsidized policies: 1,247; 
Percentage of policies that were subsidized: 68%. 

Year: 1980; 
Number of all policies: 2,103; 
Number of subsidized policies: 1,239; 
Percentage of policies that were subsidized: 59%. 

Year: 1981; 
Number of all policies: 1,915; 
Number of subsidized policies: 1,080; 
Percentage of policies that were subsidized: 56%. 

Year: 1982; 
Number of all policies: 1,900; 
Number of subsidized policies: 1,028; 
Percentage of policies that were subsidized: 54%. 

Year: 1983; 
Number of all policies: 1,981; 
Number of subsidized policies: 1,030; 
Percentage of policies that were subsidized: 52%. 

Year: 1984; 
Number of all policies: 1,926; 
Number of subsidized policies: 947; 
Percentage of policies that were subsidized: 50%. 

Year: 1985; 
Number of all policies: 2,016; 
Number of subsidized policies: 947; 
Percentage of policies that were subsidized: 47%. 

Year: 1986; 
Number of all policies: 2,119; 
Number of subsidized policies: 985; 
Percentage of policies that were subsidized: 47%. 

Year: 1987; 
Number of all policies: 2,115; 
Number of subsidized policies: 937; 
Percentage of policies that were subsidized: 44%. 

Year: 1988; 
Number of all policies: 2,149; 
Number of subsidized policies: 913; 
Percentage of policies that were subsidized: 43%. 

Year: 1989; 
Number of all policies: 2,292; 
Number of subsidized policies: 911; 
Percentage of policies that were subsidized: 40%. 

Year: 1990; 
Number of all policies: 2,477; 
Number of subsidized policies: 956; 
Percentage of policies that were subsidized: 39%. 

Year: 1991; 
Number of all policies: 2,532; 
Number of subsidized policies: 957; 
Percentage of policies that were subsidized: 38%. 

Year: 1992; 
Number of all policies: 2,623; 
Number of subsidized policies: 970; 
Percentage of policies that were subsidized: 37%. 

Year: 1993; 
Number of all policies: 2,828; 
Number of subsidized policies: 1,011; 
Percentage of policies that were subsidized: 36%. 

Year: 1994; 
Number of all policies: 3,040; 
Number of subsidized policies: 1,037; 
Percentage of policies that were subsidized: 34%. 

Year: 1995; 
Number of all policies: 3,476; 
Number of subsidized policies: 1,103; 
Percentage of policies that were subsidized: 32%. 

Year: 1996; 
Number of all policies: 3,693; 
Number of subsidized policies: 1,157; 
Percentage of policies that were subsidized: 31%. 

Year: 1997; 
Number of all policies: 4,102; 
Number of subsidized policies: 1,216; 
Percentage of policies that were subsidized: 30%. 

Year: 1998; 
Number of all policies: 4,235; 
Number of subsidized policies: 1,229; 
Percentage of policies that were subsidized: 29%. 

Year: 1999; 
Number of all policies: 4,329; 
Number of subsidized policies: 1,240; 
Percentage of policies that were subsidized: 29%. 

Year: 2000; 
Number of all policies: 4,369; 
Number of subsidized policies: 1,227; 
Percentage of policies that were subsidized: 28%. 

Year: 2001; 
Number of all policies: 4,458; 
Number of subsidized policies: 1,205; 
Percentage of policies that were subsidized: 27%. 

Year: 2002; 
Number of all policies: 4,519; 
Number of subsidized policies: 1,193; 
Percentage of policies that were subsidized: 26%. 

Year: 2003; 
Number of all policies: 4,565; 
Number of subsidized policies: 1,194; 
Percentage of policies that were subsidized: 26%. 

Year: 2004; 
Number of all policies: 4,667; 
Number of subsidized policies: 1,188; 
Percentage of policies that were subsidized: 25%. 

Year: 2005; 
Number of all policies: 4,962; 
Number of subsidized policies: 1,208; 
Percentage of policies that were subsidized: 24%. 

Year: 2006; 
Number of all policies: 5,514; 
Number of subsidized policies: 1,263; 
Percentage of policies that were subsidized: 23%. 

Year: 2007; 
Number of all policies: 5,655; 
Number of subsidized policies: 1,250; 
Percentage of policies that were subsidized: 22%. 

Year: 2008; 
Number of all policies: 5,684; 
Number of subsidized policies: 1,196; 
Percentage of policies that were subsidized: 21%. 

Year: 2009; 
Number of all policies: 5,700; 
Number of subsidized policies: 1,182; 
Percentage of policies that were subsidized: 21%. 

Year: 2010; 
Number of all policies: 5,645; 
Number of subsidized policies: 1,183; 
Percentage of policies that were subsidized: 21%. 

Year: 2012; 
Number of all policies: 5,646; 
Number of subsidized policies: 1,147; 
Percentage of policies that were subsidized: 20%. 

Year: 2012; 
Number of all policies: 5,629; 
Number of subsidized policies: 1,136; 
Percentage of policies that were subsidized: 20%. 

Source: GAO analysis of FEMA data. GAO-15-111. 

[End of figure] 

Similarly, the percentage of premiums from subsidized policies 
decreased from 1978 to 2012. In 2012 premiums from subsidized policies 
represented 38 percent of all NFIP premiums (see figure 2). 

Figure 2: Total National Flood Insurance Program (NFIP) and Subsidized 
Premiums, in 2014 Dollars, and Percentage of Premiums That Were 
Subsidized, 1978-2012: 

[Refer to PDF for image: multiple line graph] 

Year: 1978; 
All premiums in 2014 dollars: $0.3 billion; 
Subsidized premiums in 2014 dollars: $0.2 billion; 
Percentage of premiums subsidized: 86.1%. 

Year: 1979; 
All premiums in 2014 dollars: $0.3 billion; 
Subsidized premiums in 2014 dollars: $0.3 billion; 
Percentage of premiums subsidized: 81.0%. 

Year: 1980; 
All premiums in 2014 dollars: $0.3 billion; 
Subsidized premiums in 2014 dollars: $0.2 billion; 
Percentage of premiums subsidized: 74.3%. 

Year: 1981; 
All premiums in 2014 dollars: $0.5 billion; 
Subsidized premiums in 2014 dollars: $0.3 billion; 
Percentage of premiums subsidized: 63.9%. 

Year: 1982; 
All premiums in 2014 dollars: $0.7 billion; 
Subsidized premiums in 2014 dollars: $0.4 billion; 
Percentage of premiums subsidized: 61.6%. 

Year: 1983; 
All premiums in 2014 dollars: $0.7 billion; 
Subsidized premiums in 2014 dollars: $0.4 billion; 
Percentage of premiums subsidized: 58.1%. 

Year: 1984; 
All premiums in 2014 dollars: $0.8 billion; 
Subsidized premiums in 2014 dollars: $0.4 billion; 
Percentage of premiums subsidized: 55.7%. 

Year: 1985; 
All premiums in 2014 dollars: $0.8 billion; 
Subsidized premiums in 2014 dollars: $0.4 billion; 
Percentage of premiums subsidized: 52.9%. 

Year: 1986; 
All premiums in 2014 dollars: $0.9 billion; 
Subsidized premiums in 2014 dollars: $0.5 billion; 
Percentage of premiums subsidized: 52.9%. 

Year: 1987; 
All premiums in 2014 dollars: $1.0 billion; 
Subsidized premiums in 2014 dollars: $0.5 billion; 
Percentage of premiums subsidized: 52.1%. 

Year: 1988; 
All premiums in 2014 dollars: $1.0 billion; 
Subsidized premiums in 2014 dollars: $0.5 billion; 
Percentage of premiums subsidized: 50.9%. 

Year: 1989; 
All premiums in 2014 dollars: $1.0 billion; 
Subsidized premiums in 2014 dollars: $0.5 billion; 
Percentage of premiums subsidized: 49.7%. 

Year: 1990; 
All premiums in 2014 dollars: $1.0 billion; 
Subsidized premiums in 2014 dollars: $0.5 billion; 
Percentage of premiums subsidized: 48.8%. 

Year: 1991; 
All premiums in 2014 dollars: $1.1 billion; 
Subsidized premiums in 2014 dollars: $0.5 billion; 
Percentage of premiums subsidized: 47.8%. 

Year: 1992; 
All premiums in 2014 dollars: $1.2 billion; 
Subsidized premiums in 2014 dollars: $0.5 billion; 
Percentage of premiums subsidized: 46.8%. 

Year: 1993; 
All premiums in 2014 dollars: $1.3 billion; 
Subsidized premiums in 2014 dollars: $0.6 billion; 
Percentage of premiums subsidized: 45.7%. 

Year: 1994; 
All premiums in 2014 dollars: $1.4 billion; 
Subsidized premiums in 2014 dollars: $0.6 billion; 
Percentage of premiums subsidized: 44.4%. 

Year: 1995; 
All premiums in 2014 dollars: $1.6 billion; 
Subsidized premiums in 2014 dollars: $0.7 billion; 
Percentage of premiums subsidized: 43.6%. 

Year: 1996; 
All premiums in 2014 dollars: $1.7 billion; 
Subsidized premiums in 2014 dollars: $0.7 billion; 
Percentage of premiums subsidized: 44.3%. 

Year: 1997; 
All premiums in 2014 dollars: $2.0 billion; 
Subsidized premiums in 2014 dollars: $0.9 billion; 
Percentage of premiums subsidized: 43.7%. 

Year: 1998; 
All premiums in 2014 dollars: $2.2 billion; 
Subsidized premiums in 2014 dollars: $0.9 billion; 
Percentage of premiums subsidized: 43.1%. 

Year: 1999; 
All premiums in 2014 dollars: $2.3 billion; 
Subsidized premiums in 2014 dollars: $0.9 billion; 
Percentage of premiums subsidized: 42.6%. 

Year: 2000; 
All premiums in 2014 dollars: $2.2 billion; 
Subsidized premiums in 2014 dollars: $0.9 billion; 
Percentage of premiums subsidized: 42.0%. 

Year: 2001; 
All premiums in 2014 dollars: $2.2 billion; 
Subsidized premiums in 2014 dollars: $0.9 billion; 
Percentage of premiums subsidized: 41.3%. 

Year: 2002; 
All premiums in 2014 dollars: $2.2 billion; 
Subsidized premiums in 2014 dollars: $0.9 billion; 
Percentage of premiums subsidized: 40.9%. 

Year: 2003; 
All premiums in 2014 dollars: $2.3 billion; 
Subsidized premiums in 2014 dollars: $0.9 billion; 
Percentage of premiums subsidized: 40.7%. 

Year: 2004; 
All premiums in 2014 dollars: $2.4 billion; 
Subsidized premiums in 2014 dollars: $1.0 billion; 
Percentage of premiums subsidized: 41.1%. 

Year: 2005; 
All premiums in 2014 dollars: $2.6 billion; 
Subsidized premiums in 2014 dollars: $1.0 billion; 
Percentage of premiums subsidized: 40.3%. 

Year: 2006; 
All premiums in 2014 dollars: $2.9 billion; 
Subsidized premiums in 2014 dollars: $1.1 billion; 
Percentage of premiums subsidized: 39.1%. 

Year: 2007; 
All premiums in 2014 dollars: $3.1 billion; 
Subsidized premiums in 2014 dollars: $1.2 billion; 
Percentage of premiums subsidized: 39.1%. 

Year: 2008; 
All premiums in 2014 dollars: $3.3 billion; 
Subsidized premiums in 2014 dollars: $1.2 billion; 
Percentage of premiums subsidized: 38.4%. 

Year: 2009; 
All premiums in 2014 dollars: $3.4 billion; 
Subsidized premiums in 2014 dollars: $1.3 billion; 
Percentage of premiums subsidized: 38.4%. 

Year: 2010; 
All premiums in 2014 dollars: $3.6 billion; 
Subsidized premiums in 2014 dollars: $1.3 billion; 
Percentage of premiums subsidized: 38.2%. 

Year: 2011; 
All premiums in 2014 dollars: $3.6 billion; 
Subsidized premiums in 2014 dollars: $1.3 billion; 
Percentage of premiums subsidized: 37.7%. 

Year: 2012; 
All premiums in 2014 dollars: $3.7 billion; 
Subsidized premiums in 2014 dollars: $1.4 billion; 
Percentage of premiums subsidized: 38.4%. 

Source: GAO analysis of FEMA data. GAO-15-111. 

[End of figure] 

The Biggert-Waters Act and HFIAA affected NFIP's ability to charge 
subsidized premium rates on certain types of properties and will 
change the number of policies that are subsidized as well as the size 
of the subsidy. For example the Biggert-Waters Act prohibited 
subsidies from being extended for homes sold to new owners after July 
6, 2012 (date of enactment) and removed them if properties lapsed in 
coverage as a result of the policyholders' deliberate choice.[Footnote 
17] Under the changes in the Biggert-Waters Act, the number of 
subsidized policies could have decreased over time. HFIAA reinstated 
premium subsidies for properties that were purchased after July 6, 
2012, and properties not insured as of July 6, 2012.[Footnote 18] 
Thus, new policies may join NFIP and receive subsidized rates and the 
number of subsidized policies could increase over time. 

However, provisions under both acts changed the status of subsidies 
and decreased the size of subsidies by annually increasing subsidized 
rates. The Biggert-Waters Act required FEMA to phase out subsidies--
annually increasing premiums by 25 percent until full-risk rates were 
reached--for certain types of properties, including business 
properties, residential properties that are not a primary residence, 
properties that have experienced or sustained substantial damage or 
improvement, and severe repetitive loss properties.[Footnote 19] HFIAA 
did not affect the phase out schedule of these subsidies--which 
represented about 41 percent of all subsidized policies, as of 
September 30, 2013 (see figure 3).[Footnote 20] Under HFIAA, FEMA also 
generally must increase premium rates on other subsidized policies by 
5-15 percent annually. 

Figure 3: Status of Pre-Flood Insurance Rate Map (FIRM) Subsidies 
under the Biggert-Waters Act and Homeowner Flood Insurance 
Affordability Act (HFIAA): 

[Refer to PDF for image: illustrated table] 

Property type or circumstances: Primary residences purchased after 
July 6, 2012[B] 
Status of subsidy after the Biggert-Waters Act: Subsidy eliminated; 
Status of subsidy after HFIAA: Subsidy reinstated and subject to 
annual increases; 
Annual rate class increase percentage[A]: 5-15%. 

Property type or circumstances: Primary residences not insured by 
National Flood Insurance Program (NFIP) as of July 6, 2012[B]; 
Status of subsidy after the Biggert-Waters Act: Subsidy eliminated; 
Status of subsidy after HFIAA: Subsidy reinstated and subject to 
annual increases; 
Annual rate class increase percentage[A]: 5-15%. 

Property type or circumstances: Properties not included in any other 
category[C]; 
Status of subsidy after the Biggert-Waters Act: Subsidy continued; 
Status of subsidy after HFIAA: Subsidy subject to annual increases; 
Annual rate class increase percentage[A]: 5-15%. 

Property type or circumstances: Nonprimary residences; 
Status of subsidy after the Biggert-Waters Act: Subsidy subject to 
annual increases; 
Status of subsidy after HFIAA: Subsidy subject to annual increases; 
Annual rate class increase percentage[A]: 25%. 

Property type or circumstances: Severe repetitive loss[D]; 
Status of subsidy after the Biggert-Waters Act: Subsidy subject to 
annual increases; 
Status of subsidy after HFIAA: Subsidy subject to annual increases; 
Annual rate class increase percentage[A]: 25%. 

Property type or circumstances: Business properties; 
Status of subsidy after the Biggert-Waters Act: Subsidy subject to 
annual increases; 
Status of subsidy after HFIAA: Subsidy subject to annual increases; 
Annual rate class increase percentage[A]: 25%. 

Property type or circumstances: Substantial cumulative damage[E]; 
Status of subsidy after the Biggert-Waters Act: Subsidy subject to 
annual increases; 
Status of subsidy after HFIAA: Subsidy subject to annual increases; 
Annual rate class increase percentage[A]: 25%. 

Property type or circumstances: Substantial damage or improvement[F]; 
Status of subsidy after the Biggert-Waters Act: Subsidy subject to 
annual increases; 
Status of subsidy after HFIAA: Subsidy subject to annual increases; 
Annual rate class increase percentage[A]: 25%. 

Property type or circumstances: NFIP policy that lapsed in coverage; 
Status of subsidy after the Biggert-Waters Act: Subsidy eliminated[G]; 
Status of subsidy after HFIAA: 
Annual rate class increase percentage[A]: N/A. 

Property type or circumstances: Any prospective insured who refuses to 
accept any offer for mitigation assistance (including an offer to 
relocate) following a major disaster or in connection with a 
repetitive loss property or a severe repetitive loss property; 
Status of subsidy after the Biggert-Waters Act: Subsidy eliminated; 
Status of subsidy after HFIAA: Subsidy eliminated; 
Annual rate class increase percentage[A]: N/A. 

Source: GAO analysis of applicable laws. GAO-15-111. 

[A] Percentages are those set under HFIAA; the Biggert-Waters Act 
placed a 20 percent cap on increases but no mandatory minimum 
increase. Further, HFIAA permits individual property increases of up 
to 18 percent, but limits the rate class increases to 15 percent per 
year. 

[B] These primary residences are subject to 25 percent annual 
increases if they are severe repetitive loss properties, or have 
substantial damage or substantial cumulative damage. 

[C] These include primary residences and nonresidential properties 
that are not businesses, such as churches and schools. Although not 
required by the Biggert-Waters Act, FEMA increased premium rates for 
these nonresident properties by 25 percent. 

[D] For single-family properties, severe repetitive loss properties 
are those that have incurred four or more claim payments exceeding 
$5,000 each, with a cumulative amount of such payments over $20,000; 
or at least two claims with a cumulative total exceeding the value of 
the property. For multifamily properties, FEMA is to define the term 
by regulation. 42 U.S.C. § 4014(h). 

[E] Any property that has incurred flood-related damage in which the 
cumulative amounts of payments under the title equaled or exceeded the 
fair market value of such property. 

[F] Any property that has experienced or sustained substantial damage 
exceeding 50 percent of the fair market value or substantial 
improvement exceeding 50 percent of the fair market value. The Biggert-
Waters Act originally set the substantial improvement amount at 30 
percent, but HFIAA raised the percentage to 50 percent of fair market 
value. 

[G] Only for NFIP policies that lapsed in coverage as a result of the 
deliberate choice of the policyholder. If a policy lapses for other 
reasons, rate increases of 25 percent or 5-15 percent may apply if the 
policy qualifies under one of the other categories stated above. 

[H] For NFIP policies that lapsed in coverage unless the decision of 
the policy holder to permit a lapse in coverage was as a result of the 
property covered by the policy no longer being required to retain such 
coverage. For any policy that lapses but is not automatically charged 
full-risk rates, rate increases of 25 percent or 5-15 percent may 
apply if the policy qualifies under one of the other categories stated 
above. FEMA has stated that policies for pre-FIRM buildings in high-
risk areas that lapsed due to a late renewal payment (received after 
the 30-day grace period but less than 90 days after expiration) can be 
re-issued and renewed at subsidized rates. But as HFIAA states, 
buildings with lapsed policies are not eligible for a subsidy unless 
the lapse was the result of the policy no longer being required to 
retain flood insurance coverage. 

[End of figure] 

The time that will be required for subsidized rates to reach full-risk 
rates varies by flood zone, coverage amounts, and elevation relative 
to BFE. At the level of the rate increases to phase out certain 
subsidies required under the Biggert-Waters Act (25 percent per year), 
some policyholders could continue to benefit from subsidized rates for 
12 years or more. For annual increases of 15 percent under HFIAA, 
phase-out times for subsidies will be longer. For annual increases of 
5 percent, policyholders could continue to benefit from subsidized 
rates for more than 30 years. For example, figure 4 shows the 
different timelines for a subsidized single-family policy in an AE 
flood zone to reach the full-risk rate (with the number of years 
varying according to amount of coverage, elevation relative to BFE, 
and the percentage of the annual rate increases). As FEMA increases 
subsidized rates, at some point a policyholder may have an incentive 
to obtain an elevation certificate and pay the full-risk rate rather 
than the subsidized rate because the full-risk rate would be lower. 
For example, a policyholder choosing $250,000 in building coverage for 
a currently subsidized AE zone policy at BFE would pay a lower full-
risk rate than the subsidized rate if the policyholder documented the 
elevation with an elevation certificate. If a policyholder chose to 
supply an elevation certificate, FEMA would charge the lower of the 
full-risk and subsidized rates. 

Figure 4: Examples of How Many Years Might be Required for Subsidized 
Premium Rates for AE Flood Zones to Reach Full-Risk Rates (by Coverage 
Amount, Elevation, and Percentage of Annual Rate Increase): 

[Refer to PDF for image: illustration] 

$50,000 in building coverage in flood zone AE: 

At base flood elevation (BFE); 
5 percent annual increase to subsidized rate: 26 years; 
15 percent annual increase to subsidized rate: 6 years; 
25 percent annual increase to subsidized rate[B]: 4 years. 

2 feet below BFE; 
5 percent annual increase to subsidized rate and more than 30 years: 
30 years; 
15 percent annual increase to subsidized rate: 15 years; 
25 percent annual increase to subsidized rate[B]: 9 years. 

5 feet below BFE; 
5 percent annual increase to subsidized rate and more than 30 years: 
30 years; 
15 percent annual increase to subsidized rate: 20 years; 
25 percent annual increase to subsidized rate[B]: 12 years. 

10 feet below BFE; 
5 percent annual increase to subsidized rate and more than 30 years: 
30 years; 
15 percent annual increase to subsidized rate: 25 years; 
25 percent annual increase to subsidized rate[B]: 15 years. 

$250,000 in building coverage in flood zone AE: 

At BFE; 
25 percent annual increase to subsidized rate[B]: 0 years; 
15 percent annual increase to subsidized rate: 0 years; 
25 percent annual increase to subsidized rate[B]: 0 years. 

2 feet below BFE; 
5 percent annual increase to subsidized rate: 30 years; 
15 percent annual increase to subsidized rate: 8 years; 
25 percent annual increase to subsidized rate[B]: 5 years. 

5 feet below BFE; 
5 percent annual increase to subsidized rate and more than 30 years: 
30 years; 
15 percent annual increase to subsidized rate: 13 years; 
25 percent annual increase to subsidized rate[B]: 8 years. 

10 feet below BFE; 
5 percent annual increase to subsidized rate and more than 30 years: 
30 years; 
15 percent annual increase to subsidized rate: 19 years; 
25 percent annual increase to subsidized rate[B]: 11 years. 

Source: GAO analysis of FEMA data. GAO-15-111. 

Note: This example uses FEMA's subsidized premium rates for building 
coverage for a single-family structure without a basement as of 
October 1, 2013 and full-risk rates for a similar structure as of 
March 21, 2014. This example adjusts full-risk rates annually by gross 
domestic product (GDP) price indexes provided by the Bureau of 
Economic Analysis and projected through 2044. 

[A] An AE subsidized premium with $250,000 of coverage exceeds the 
full-risk premium if the building is at BFE. 

[B] FEMA is required to annually increase some subsidized premiums by 
25 percent, but has the discretion in applying increases for other 
subsidized premiums (that is, can set increases from 5 percent to15 
percent). 

[End of figure] 

FEMA sells and services NFIP policies primarily through private 
insurance companies that participate in the Write-Your-Own (WYO) 
program. Insurance agents from these companies are the main point of 
contact for most policyholders. FEMA compensates the companies based 
on a percentage of the premiums and claims for policies they manage. 
WYOs adjust, settle, and pay flood claims, as well as handle lawsuits 
arising from claims. Based on information the insurance agents submit, 
WYOs issue policies, collect premiums, deduct an allowance for 
commissions and operating expenses from the premiums, and remit the 
balance to NFIP. When flood losses occur, policyholders report them to 
their insurance agents, who notify the WYOs. The WYOs review the 
claims and process approved claims for payment. FEMA reimburses WYOs 
from the National Flood Insurance Fund for the amount of the claims 
plus a percentage of the claims to cover adjusting and processing 
expenses. FEMA has modified its WYO compensation methodology over 
time. Although WYOs handle most flood policies, FEMA also contracts 
with a company that serves as FEMA's direct agent. The direct agent 
sells and services standard policies, but also exclusively sells and 
services repetitive loss and group policies. The direct agent is 
compensated through the contract rather than with a percentage of 
premiums and claims. The WYOs and FEMA's direct agent submit 
information on new and renewed policies and claims to FEMA's policy 
and claims data system. As part of its monitoring and oversight 
responsibilities, FEMA conducts operational reviews of the direct 
agent annually, and WYO companies about every 3 years.[Footnote 21] 

FEMA funds NFIP primarily through insurance premiums and fees paid by 
policyholders.[Footnote 22] FEMA uses NFIP premiums to pay insurance 
claims (losses) and all program expenses, including salaries, 
outreach, research, and operating expenses. When premiums are 
insufficient to cover these losses and expenses, FEMA may borrow money 
from Treasury. NFIP's program expenses are either variable (increase 
with premium increases) or fixed (do not change with premium 
increases). Variable expenses include state or local premium taxes, 
and WYO commissions and expenses. Fixed expenses include NFIP 
salaries, floodplain mapping, mitigation grants, contractor costs, and 
the direct agent. In addition to premiums, NFIP collects a policy fee 
from each policyholder that covers a portion of the fixed expenses. 
After expenses, FEMA uses the remainder of premiums to pay for losses 
and debt repayment (see figure 5).[Footnote 23] 

Figure 5: National Flood Insurance Program (NFIP) Projected Percentage 
of Premiums and Policy Fees Available for Losses and Expenses for 
Fiscal Year 2014: 

[Refer to PDF for image: pie-chart] 

Variable expenses: 28%; 
* WYO commissions: 14%; 
* WYO expenses[A]: 12%; 
* Premium tax: 2%; 
Fixed expenses[B]: 8%. 
Losses and debt reduction[C]: 65%. 

Source: GAO analysis of FEMA information. GAO-15-111. 

Note: Percentages do not add to 100 because of rounding. 

[A] Write-Your-Own (WYO) expenses include WYO operating expenses and a 
portion of WYO claims processing overhead. 

[B] Fixed expenses are funded by premiums and policy fees and include 
NFIP salaries, mapping, mitigation grants, contractor costs, and the 
NFIP direct agent. 

[C] Debt reduction includes interest payments on accrued debt. The 
projected percentage available for losses and debt repayment for 2014 
is higher than previous years because it includes money collected for 
the new reserve fund. Money collected with the premium for the reserve 
fund is not subject to variable expenses. 

[End of figure] 

FEMA Lacks Data to Measure Forgone Premiums Accurately and Estimates 
Vary Widely: 

Because Flood Risk Information Is Limited, the Forgone Premiums 
Associated with Subsidized Policies Cannot Be Measured Accurately: 

FEMA does not collect the flood risk information for most subsidized 
policies and therefore cannot accurately determine forgone premiums 
(the difference between subsidized premiums paid and the premiums that 
would be required to cover the full risk of losses) associated with 
subsidized policies. FEMA has not required all policyholders to submit 
flood risk information, specifically elevation certificates, which are 
needed to determine their full risk, because it does not use the 
information in rating subsidized policies.[Footnote 24] In 
implementing the Biggert-Waters Act, FEMA began requiring certain 
policyholders to submit elevation information upon renewal or when new 
policies were issued as required for full-risk rates. However, 
according to FEMA officials, FEMA will not continue to collect this 
information with the restoration of these subsidies under HFIAA. 
According to FEMA officials, obtaining elevation certificates can cost 
policyholders from about $500 to $2,000 or more. Therefore, the 
information needed to accurately measure forgone premiums associated 
with subsidized policies is not available. 

We previously recommended that FEMA collect flood risk information 
from all affected policyholders in SFHAs.[Footnote 25] In July 2013, 
we found that to phase out and eventually eliminate subsidies 
specified under the Biggert-Waters Act and revise rates over time, 
FEMA would need information on the relative risk of flooding and 
property elevations (elevation certificates), which generally had not 
been required for subsidized policies prior to the act. We recommended 
that FEMA develop and implement a plan to obtain the flood risk 
information needed to determine full-risk rates for properties with 
subsidized rates. FEMA agreed with the recommendation and as part of 
our current review said that it was evaluating different approaches 
for obtaining the information and using it more broadly. FEMA 
officials also stated that obtaining this information from other 
sources is very difficult because BFEs are not available on the maps 
for about 500,000 subsidized policies and some technologies for 
obtaining elevations lack precision. FEMA officials stated that they 
will continue to rely on policyholders to voluntarily obtain elevation 
certificates. Policyholders with structures at lower risk (higher 
elevations relative to BFE) have an incentive to obtain the 
certificates because they can qualify for lower rates. However, 
policyholders with structures at higher risk (lower elevations 
relative to BFE) have no incentive to obtain an elevation certificate. 
Thus, it is unlikely that FEMA will collect flood risk for all 
properties relying only on voluntary submissions. 

Although FEMA has taken some steps, we maintain the importance of 
fully implementing this recommendation and obtaining flood risk 
information to measure accurately forgone premiums associated with 
subsidies. Under HFIAA, FEMA must increase subsidized premium rates 
for all but certain properties by 5-15 percent annually, which 
eventually should phase out all pre-FIRM subsidized rates.[Footnote 
26] FEMA will need the property-level information for these subsidized 
policies and the policies with subsidies that are being phased out 
through the annual 25 percent increases under the Biggert-Waters Act, 
to know when the relevant subsidized premium rate reaches the full-
risk rate for any given policy. Obtaining information that would allow 
for measuring forgone premiums associated with subsidies also is 
important because although the size of subsidies will decrease under 
HFIAA, the number of subsidized policies could increase over time and 
continue to affect the financial stability of the program. 
Historically, the percentage change in subsidized policies generally 
followed the same trend as the percentage change in total policies 
(see figure 6). 

Figure 6: Percentage Change in Subsidized and Total National Flood 
Insurance Program (NFIP) Policies, 1978-2012: 

[Refer to PDF for image: multiple line graph] 

Year: 1978; 
Subsidized policies year-over-year percentage change: 0; 
Total policies year-over-year percentage change: 0. 

Year: 1979; 
Subsidized policies year-over-year percentage change: 13.16%; 
Total policies year-over-year percentage change: 27.45%. 

Year: 1980; 
Subsidized policies year-over-year percentage change: -0.65%; 
Total policies year-over-year percentage change: 14.13%. 

Year: 1981; 
Subsidized policies year-over-year percentage change: -12.79%; 
Total policies year-over-year percentage change: -8.97%. 

Year: 1982; 
Subsidized policies year-over-year percentage change: -4.84%; 
Total policies year-over-year percentage change: -0.76%. 

Year: 1983; 
Subsidized policies year-over-year percentage change: 0.23%; 
Total policies year-over-year percentage change: 4.24%. 

Year: 1984; 
Subsidized policies year-over-year percentage change: -6.23%; 
Total policies year-over-year percentage change: -2.76%. 

Year: 1985; 
Subsidized policies year-over-year percentage change: -2.02%; 
Total policies year-over-year percentage change: 4.69%. 

Year: 1986; 
Subsidized policies year-over-year percentage change: 4.04%; 
Total policies year-over-year percentage change: 5.07%. 

Year: 1987; 
Subsidized policies year-over-year percentage change: -4.88%; 
Total policies year-over-year percentage change: -0.18%. 

Year: 1988; 
Subsidized policies year-over-year percentage change: -2.55%; 
Total policies year-over-year percentage change: 1.61%. 

Year: 1989; 
Subsidized policies year-over-year percentage change: -0.23%; 
Total policies year-over-year percentage change: 6.69%. 

Year: 1990; 
Subsidized policies year-over-year percentage change: 4.95%; 
Total policies year-over-year percentage change: 8.06%. 

Year: 1991; 
Subsidized policies year-over-year percentage change: 0.11%; 
Total policies year-over-year percentage change: 2.21%. 

Year: 1992; 
Subsidized policies year-over-year percentage change: 1.39%; 
Total policies year-over-year percentage change: 3.58%. 

Year: 1993; 
Subsidized policies year-over-year percentage change: 4.19%; 
Total policies year-over-year percentage change: 7.82%. 

Year: 1994; 
Subsidized policies year-over-year percentage change: 2.56%; 
Total policies year-over-year percentage change: 7.48%. 

Year: 1995; 
Subsidized policies year-over-year percentage change: 6.32%; 
Total policies year-over-year percentage change: 14.36%. 

Year: 1996; 
Subsidized policies year-over-year percentage change: 4.95%; 
Total policies year-over-year percentage change: 6.22%. 

Year: 1997; 
Subsidized policies year-over-year percentage change: 5.06%; 
Total policies year-over-year percentage change: 11.08%. 

Year: 1998; 
Subsidized policies year-over-year percentage change: 1.11%; 
Total policies year-over-year percentage change: 3.24%. 

Year: 1999; 
Subsidized policies year-over-year percentage change: 0.88%; 
Total policies year-over-year percentage change: 2.24%. 

Year: 2000; 
Subsidized policies year-over-year percentage change: -1.04%; 
Total policies year-over-year percentage change: 0.9%. 

Year: 2001; 
Subsidized policies year-over-year percentage change: -1.78%; 
Total policies year-over-year percentage change: 2.05%. 

Year: 2002; 
Subsidized policies year-over-year percentage change: -1.04%; 
Total policies year-over-year percentage change: 1.38%. 

Year: 2003; 
Subsidized policies year-over-year percentage change: 0.12%; 
Total policies year-over-year percentage change: 1.01%. 

Year: 2004; 
Subsidized policies year-over-year percentage change: -0.55%; 
Total policies year-over-year percentage change: 2.23%. 

Year: 2005; 
Subsidized policies year-over-year percentage change: 1.74%; 
Total policies year-over-year percentage change: 6.31%. 

Year: 2006; 
Subsidized policies year-over-year percentage change: 4.49%; 
Total policies year-over-year percentage change: 11.14%. 

Year: 2007; 
Subsidized policies year-over-year percentage change: -0.98%; 
Total policies year-over-year percentage change: 2.56%. 

Year: 2008; 
Subsidized policies year-over-year percentage change: -4.32%; 
Total policies year-over-year percentage change: 0.5%. 

Year: 2009; 
Subsidized policies year-over-year percentage change: -1.15%; 
Total policies year-over-year percentage change: 0.28%. 

Year: 2010; 
Subsidized policies year-over-year percentage change: 0.01%; 
Total policies year-over-year percentage change: -0.96%. 

Year: 2011; 
Subsidized policies year-over-year percentage change: -3%; 
Total policies year-over-year percentage change: 0.01%. 

Year: 2012; 
Subsidized policies year-over-year percentage change: -0.99%; 
Total policies year-over-year percentage change: -0.3%. 

Source: GAO analysis of FEMA data. GAO-15-111. 

[End of figure] 

FEMA has begun to collect elevation information for policyholder 
disclosure purposes as required by HFIAA, but according to FEMA 
officials they have not determined it to be of sufficient quality for 
use in determining full-risk rates, which would be required to measure 
forgone premiums. HFIAA requires FEMA to clearly communicate full 
flood risk determinations to individual property owners regardless of 
whether their premium rates are full actuarial rates or subsidized. 
[Footnote 27] Additionally, information about risk is important in 
that it can influence behavior, such as purchase decisions and 
decisions to mitigate risk. According to FEMA officials, in response 
to the HFIAA provision, FEMA has begun gathering relevant information 
from publicly available sources and considering formats for disclosing 
the information to policyholders. Additionally, they said that FEMA 
has an ongoing pilot program in North Carolina to use Light Detection 
and Ranging (LIDAR) technology and flood maps to determine flood risk 
at the property level. According to FEMA officials, the information 
from these two efforts could give an order of magnitude for the risk, 
but may not be of sufficient quality to use in rating policies. This 
information also may not be of sufficient quality to measure forgone 
premiums associated with subsidized policies. 

Estimates of Forgone Premiums for Subsidized Policies Vary: 

Although the information to measure actual forgone premiums for 
subsidized policies was not available, using available information we 
estimated forgone premiums for 2002-2013 to be roughly $16-25 billion 
and $11-17 billion net of expenses. We were unable to calculate the 
actual forgone premiums for subsidized policies because, as stated 
previously, FEMA does not have the information required to determine 
flood risk for most of these policies. Therefore, to estimate forgone 
premiums we used two statements about the subsidy's impact on NFIP 
premiums that are included in FEMA's actuarial rate reviews for 2002-
2013. 

* Impact on aggregate premiums. If FEMA were to eliminate the subsidy 
for the approximately 20 percent of policies with subsidized rates, 
while leaving the unsubsidized policies unchanged, the aggregate 
premium for the entire NFIP would increase approximately 50-75 
percent.[Footnote 28] 

* Percentage of expected long-term losses covered by subsidized 
premiums. The subsidized pre-FIRM properties are estimated to pay 45-
50 percent of the full-risk premium needed to fund the long-term 
expectation for losses.[Footnote 29] That is, subsidized policyholders 
pay 45-50 percent of what they would pay if they were charged full 
rates. FEMA first reported this percentage as 35-40 percent for 2002, 
but gradually increased the percentage after making adjustments to the 
subsidized rates.[Footnote 30] 

We note several limitations to using these statements to produce our 
estimates. First, FEMA officials said the statements should not be 
considered definitive or precise; therefore, our estimates also are 
not precise. The officials stated they based the statements on their 
analysis of a 1999 PricewaterhouseCoopers (PwC) report, which sampled 
pre-FIRM structures around the nation, determined their flood zones, 
elevations relative to BFE, and full-risk rates, and then projected a 
nationwide distribution of the policies.[Footnote 31] FEMA officials 
said they used this information to arrive at the 35-40 percent 
estimate for 2002. They used professional judgment to make adjustments 
to the statements over the years based on how rate increases for 
subsidized policies compared with inflation. Second, relying on these 
statements limited the scope of our analysis because FEMA did not 
include these statements in actuarial reviews for years before 2002. 
Therefore, we could not estimate the total historic forgone premiums 
of these subsidies and limited our scope to 2002-2013.[Footnote 32] In 
the past, FEMA subsidized a much larger percentage of policies (76 
percent in 1978, compared with 21 percent in 2013), so current 
estimates should not be applied to previous years. 

Third, FEMA's statements do not account for any changes in program 
participation that could result from increasing the premium rates of 
subsidized policies to full-risk rates. According to FEMA officials 
and insurance industry stakeholders, higher premiums could have 
resulted in reduced participation in NFIP over time as policyholders 
either decided to drop policies or were priced out of the market. The 
1999 PwC study estimated a possible 50 percent decrease in 
participation by affected property owners if subsidies were 
immediately eliminated. This drop in participation could result both 
in lower premium revenues and lower losses, so the net effect on the 
program of eliminating subsidies would be unclear. FEMA officials 
stated that increased rates likely resulted in some property owners 
forgoing flood insurance when FEMA began charging full-risk rates for 
properties that previously would have qualified for subsidized rates 
(in the short time after the Biggert-Waters Act was implemented and 
before HFIAA was enacted). Had FEMA substantially increased subsidized 
rates in earlier years, it likely would not have collected the total 
amount of forgone premiums we estimate in this report. 

Considering these limitations, we relied on FEMA's statements in 
producing our estimates because they provide the only information 
available about the relationship of subsidies and full-risk rates for 
the period we reviewed. We estimated the range of forgone premiums 
using three different calculations to illustrate the potential 
magnitude of forgone premiums associated with subsidized policies. 
Table 1 summarizes the estimated forgone premiums and forgone premiums 
net of expenses from each calculation using FEMA's statements, as 
discussed above. For the first estimate, we used FEMA's statement 
about the impact of eliminating subsidies on aggregate premiums. For 
the second estimate, we used the percentage of long-term expected 
losses covered by subsidized premiums. For the third, we used the 
percentage of long-term expected losses covered by subsidized premiums 
to estimate forgone premiums for only the policies that remained 
subsidized after HFIAA.[Footnote 33] 

Table 1: Estimates of Forgone Premiums Associated with Subsidies, 
Forgone Premiums Net of Expenses, and Forgone Premiums for Expenses, 
2002-2013, in 2014 Dollars: 

Estimate calculated by: Impact on aggregate premiums; 
Forgone premiums: $16-25 billion; 
Amount of forgone premiums net of expenses: $11-17 billion; 
Amount of forgone premiums for expenses: $5-7 billion. 

Estimate calculated by: Percentage of long-term expected losses 
covered by subsidized premiums; 
Forgone premiums: $18-23 billion; 
Amount of forgone premiums net of expenses: $13-16 billion; 
Amount of forgone premiums for expenses: $5-7 billion. 

Estimate calculated by: Considering only the policies that remain 
subsidized after HFIAA; 
Forgone premiums: $11-14 billion; 
Amount of forgone premiums net of expenses: $8-9 billion; 
Amount of forgone premiums for expenses: $3-4 billion. 

Source: GAO analysis of FEMA data. GAO-15-111. 

Note: Forgone premiums net of expenses and forgone premiums for 
expenses do not add to forgone premiums due to rounding. FEMA 
officials noted that its statements about the size of the subsidy that 
we used to make these estimates should not be considered definitive or 
precise. Additionally, FEMA has had subsidized policies since program 
inception, but we limited our analysis to 2002-2013 because FEMA did 
not make such statements in earlier actuarial rate reviews and data to 
determine if a residential policy was for a primary residence (key 
information to determine if it would retain a subsidy after the 
Biggert-Waters Act) were not reliable before 2002. Finally, these 
estimates do not take into account the possible effects of higher 
premiums on program participation. 

[End of table] 

Estimate Using the Aggregate Premium Calculation: 

We estimated forgone premiums at $16-25 billion during 2002-2013, 
using FEMA's statement that eliminating subsidies would increase NFIP 
premiums 50-75 percent after expenses. As discussed previously, some 
program expenses increase as premiums increase. Therefore, FEMA also 
would have incurred additional expenses if the agency had been able to 
collect the forgone premiums. We estimated that FEMA might have had 
$11-17 billion in premiums net of expenses. This amount--as much as $1 
billion a year--could have been available for losses or debt 
repayment. Figure 7 shows the estimated annual aggregate NFIP premiums 
had subsidies been eliminated. The low bar assumes a 50 percent 
increase in aggregate NFIP premiums and the high bar assumes a 75 
percent increase.[Footnote 34] 

Figure 7: Estimated Aggregate National Flood Insurance Program (NFIP) 
Premiums in 2002-2013 Had Subsidies Been Eliminated, in 2014 Dollars: 

[Refer to PDF for image: stacked vertical bar graph] 

Year: 2002: 

Low; 
Collected Premiums: $2.2 billion; 
Estimated forgone premiums net of expenses: $0.7 billion; 
Estimated forgone premiums for expenses: $0.3 billion. 

High; 
Collected Premiums: $2.2 billion; 
Estimated forgone premiums net of expenses: $1.3 billion; 
Estimated forgone premiums for expenses: $0.6 billion. 

Year: 2003: 

Low; 
Collected Premiums: $2.3 billion; 
Estimated forgone premiums net of expenses: $0.7 billion; 
Estimated forgone premiums for expenses: $0.3 billion. 

High; 
Collected Premiums: $2.3 billion; 
Estimated forgone premiums net of expenses: $1.0 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

Year: 2004: 

Low; 
Collected Premiums: $2.4 billion; 
Estimated forgone premiums net of expenses: $0.7 billion; 
Estimated forgone premiums for expenses: $0.3 billion. 

High; 
Collected Premiums: $2.4 billion; 
Estimated forgone premiums net of expenses: $1.1 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

Year: 2005: 

Low; 
Collected Premiums: $2.5 billion; 
Estimated forgone premiums net of expenses: $0.8 billion; 
Estimated forgone premiums for expenses: $0.3 billion. 

High; 
Collected Premiums: $2.5 billion; 
Estimated forgone premiums net of expenses: $1.1 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

Year: 2006: 

Low; 
Collected Premiums: $2.9 billion; 
Estimated forgone premiums net of expenses: $0.9 billion; 
Estimated forgone premiums for expenses: $0.4 billion. 

High; 
Collected Premiums: $2.9 billion; 
Estimated forgone premiums net of expenses: $1.4 billion; 
Estimated forgone premiums for expenses: $0.6 billion. 

Year: 2007: 

Low; 
Collected Premiums: $3.1 billion; 
Estimated forgone premiums net of expenses: $1.0 billion; 
Estimated forgone premiums for expenses: $0.4 billion. 

High; 
Collected Premiums: $3.1 billion; 
Estimated forgone premiums net of expenses: $1.4 billion; 
Estimated forgone premiums for expenses: $0.6 billion. 

Year: 2008: 

Low; 
Collected Premiums: $3.3 billion; 
Estimated forgone premiums net of expenses: $1.0 billion; 
Estimated forgone premiums for expenses: $0.4 billion. 

High; 
Collected Premiums: $3.3 billion; 
Estimated forgone premiums net of expenses: $1.6 billion; 
Estimated forgone premiums for expenses: $0.6 billion. 

Year: 2009: 

Low; 
Collected Premiums: $3.4 billion; 
Estimated forgone premiums net of expenses: $1.0 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

High; 
Collected Premiums: $3.4 billion; 
Estimated forgone premiums net of expenses: $1.6 billion; 
Estimated forgone premiums for expenses: $0.7 billion. 

Year: 2010: 

Low; 
Collected Premiums: $3.6 billion; 
Estimated forgone premiums net of expenses: $1.1 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

High; 
Collected Premiums: $3.6 billion; 
Estimated forgone premiums net of expenses: $1.6 billion; 
Estimated forgone premiums for expenses: $0.7 billion. 

Year: 2011: 

Low; 
Collected Premiums: $3.6 billion; 
Estimated forgone premiums net of expenses: $1.2 billion; 
Estimated forgone premiums for expenses: $0.4 billion. 

High; 
Collected Premiums: $3.6 billion; 
Estimated forgone premiums net of expenses: $1.8 billion; 
Estimated forgone premiums for expenses: $0.6 billion. 

Year: 2012: 

Low; 
Collected Premiums: $3.6 billion; 
Estimated forgone premiums net of expenses: $1.1 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

High; 
Collected Premiums: $3.6 billion; 
Estimated forgone premiums net of expenses: $1.7 billion; 
Estimated forgone premiums for expenses: $0.7 billion. 

Year: 2013: 

Low; 
Collected Premiums: $3.8 billion; 
Estimated forgone premiums net of expenses: $1.2 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

High; 
Collected Premiums: $3.8 billion; 
Estimated forgone premiums net of expenses: $1.8 billion; 
Estimated forgone premiums for expenses: $0.7 billion. 

Source: GAO analysis of FEMA data. GAO-15-111. 

Note: FEMA officials noted that its statements about the size of the 
subsidy that we used for these estimates should not be considered 
definitive or precise. Additionally, FEMA has had subsidized policies 
since program inception but we limited our analysis to 2002-2013 
because FEMA did not make such statements in earlier actuarial rate 
reviews and data to determine if a residential policy was for a 
primary residence (key information to determine if it would retain a 
subsidy after Biggert-Waters) were not reliable before 2002. Finally, 
these estimates do not take into account the possible effects of 
higher premiums on program participation. 

[End of figure] 

Estimate Using the Percentage of Long-term Expected Losses Covered by 
Subsidized Premiums Calculation: 

We estimated $18-23 billion in forgone premiums during 2002-2013, 
using FEMA's second statement that subsidized premiums cover 45-50 
percent of long-term expected losses.[Footnote 35] As FEMA also would 
have incurred additional expenses if it had been able to collect the 
forgone premiums, we estimated that FEMA might have had $13-16 billion 
in premiums net of expenses. This amount could have been available for 
losses or debt repayment. These ranges fall within those estimated in 
our first approach. In this approach, we estimated the difference 
between premiums for subsidized policies and their assumed full-risk 
premiums based on FEMA's stated percentage ranges. Figure 8 shows the 
estimated full-risk premiums for subsidized policies. Each bar depicts 
the annual subsidized premiums actually collected and the estimated 
forgone premiums, assuming the low and high ends of FEMA's statements 
about the percentage of losses covered by subsidized premiums. 

Figure 8: Estimated Full-Risk Premiums for Subsidized Policies in 2002-
2013, in 2014 Dollars: 

[Refer to PDF for image: stacked vertical bar graph] 

Year: 2002: 

Low; 
Collected Premiums: $0.9 billion; 
Estimated forgone premiums net of expenses: $0.8 billion; 
Estimated forgone premiums for expenses: $0.4 billion. 

High; 
Collected Premiums: $0.9 billion; 
Estimated forgone premiums net of expenses: $1.0 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

Year: 2003: 

Low; 
Collected Premiums: $0.9 billion; 
Estimated forgone premiums net of expenses: $0.8 billion; 
Estimated forgone premiums for expenses: $0.4 billion. 

High; 
Collected Premiums: $0.9 billion; 
Estimated forgone premiums net of expenses: $1.0 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

Year: 2004: 

Low; 
Collected Premiums: $1.0 billion; 
Estimated forgone premiums net of expenses: $0.9 billion; 
Estimated forgone premiums for expenses: $0.4 billion. 

High; 
Collected Premiums: $1.0 billion; 
Estimated forgone premiums net of expenses: $1.1 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

Year: 2005: 

Low; 
Collected Premiums: $1.0 billion; 
Estimated forgone premiums net of expenses: $1.0 billion; 
Estimated forgone premiums for expenses: $0.4 billion. 

High; 
Collected Premiums: $1.0 billion; 
Estimated forgone premiums net of expenses: $1.2 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

Year: 2006: 

Low; 
Collected Premiums: $1.2 billion; 
Estimated forgone premiums net of expenses: $1.1 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

High; 
Collected Premiums: $1.1 billion; 
Estimated forgone premiums net of expenses: $1.1 billion; 
Estimated forgone premiums for expenses: $0.6 billion. 

Year: 2007: 

Low; 
Collected Premiums: $1.2 billion; 
Estimated forgone premiums net of expenses: $1.1 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

High; 
Collected Premiums: $1.2 billion; 
Estimated forgone premiums net of expenses: $1.4 billion; 
Estimated forgone premiums for expenses: $0.6 billion. 

Year: 2008: 

Low; 
Collected Premiums: $1.3 billion; 
Estimated forgone premiums net of expenses: $1.2 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

High; 
Collected Premiums: $1.3 billion; 
Estimated forgone premiums net of expenses: $1.5 billion; 
Estimated forgone premiums for expenses: $0.6 billion. 

Year: 2009: 

Low; 
Collected Premiums: $1.3 billion; 
Estimated forgone premiums net of expenses: $1.2 billion; 
Estimated forgone premiums for expenses: $0.6 billion. 

High; 
Collected Premiums: $1.3 billion; 
Estimated forgone premiums net of expenses: $1.5 billion; 
Estimated forgone premiums for expenses: $0.7 billion. 

Year: 2010: 

Low; 
Collected Premiums: $1.4 billion; 
Estimated forgone premiums net of expenses: $1.3 billion; 
Estimated forgone premiums for expenses: $0.6 billion. 

High; 
Collected Premiums: $1.4 billion; 
Estimated forgone premiums net of expenses: $1.6 billion; 
Estimated forgone premiums for expenses: $0.7 billion. 

Year: 2011: 

Low; 
Collected Premiums: $1.4 billion; 
Estimated forgone premiums net of expenses: $1.1 billion; 
Estimated forgone premiums for expenses: $0.4 billion. 

High; 
Collected Premiums: $1.4 billion; 
Estimated forgone premiums net of expenses: $1.4 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

Year: 2012: 

Low; 
Collected Premiums: $1.4 billion; 
Estimated forgone premiums net of expenses: $1.1 billion; 
Estimated forgone premiums for expenses: $0.4 billion. 

High; 
Collected Premiums: $1.4 billion; 
Estimated forgone premiums net of expenses: $1.3 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

Year: 2013: 

Low; 
Collected Premiums: $1.6 billion; 
Estimated forgone premiums net of expenses: $1.0 billion; 
Estimated forgone premiums for expenses: $0.4 billion. 

High; 
Collected Premiums: $1.6billion; 
Estimated forgone premiums net of expenses: $1.2 billion; 
Estimated forgone premiums for expenses: $0.5 billion. 

Source: GAO analysis of FEMA data. GAO-151-111. 

Note: FEMA officials noted that its statements about the size of the 
subsidy that we used for these estimates should not be considered 
definitive or precise. Additionally, FEMA has had subsidized policies 
since program inception, but we limited our analysis to 2002-2013 
because FEMA did not make such statements in earlier actuarial rate 
reviews and data to determine if a residential policy was for a 
primary residence (key information to determine if it would retain a 
subsidy after Biggert-Waters) were not reliable before 2002. Finally, 
these estimates do not take into account the possible effects of 
higher premiums on program participation. 

[End of figure] 

Estimate Considering Subsidies Remaining after HFIAA: 

Finally, we estimated forgone premiums attributable to policies that 
would remain subsidized after HFIAA. We refer to remaining subsidized 
policies as those with subsidized premiums not subject to FEMA's 25 
percent annual increases. As discussed earlier, FEMA is phasing out 
subsidies--through 25 percent annual increases--including for 
nonprimary residences, severe repetitive loss properties, and business 
properties, as required by the Biggert-Waters Act. Under HFIAA, FEMA 
also generally must increase premium rates on other subsidized 
policies by 5-15 percent annually. See figure 9 for a comparison of 
estimated forgone premiums for subsidies subject to 25 percent annual 
increases and remaining subsidies. 

Figure 9: Estimated Forgone Premiums in 2002-2013, by Subsidy 
Category, in 2014 Dollars: 

[Refer to PDF for image: stacked vertical bar graph] 

Year: 2002: 

Low; 
Estimated forgone premiums for remaining subsidized policies: $0.77 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.45 billion. 

High; 
Estimated forgone premiums for remaining subsidized policies: $0.95 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.56 billion. 

Year: 2003: 

Low; 
Estimated forgone premiums for remaining subsidized policies: $0.77 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.47 billion. 

High; 
Estimated forgone premiums for remaining subsidized policies: $0.95 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.58 billion. 

Year: 2004: 

Low; 
Estimated forgone premiums for remaining subsidized policies: $0.81 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.51 billion. 

High; 
Estimated forgone premiums for remaining subsidized policies: $1.00 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.64 billion. 
 
Year: 2005: 

Low; 
Estimated forgone premiums for remaining subsidized policies: $0.84 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.55 billion. 

High; 
Estimated forgone premiums for remaining subsidized policies: $1.04 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.68 billion. 

Year: 2006: 

Low; 
Estimated forgone premiums for remaining subsidized policies: $0.91 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.61 billion. 

High; 
Estimated forgone premiums for remaining subsidized policies: $1.13 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.76 billion. 

Year: 2007: 

Low; 
Estimated forgone premiums for remaining subsidized policies: $0.97 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.66 billion. 

High; 
Estimated forgone premiums for remaining subsidized policies: $1.2 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.82 billion. 

Year: 2008: 

Low; 
Estimated forgone premiums for remaining subsidized policies: $1.03 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.72 billion. 

High; 
Estimated forgone premiums for remaining subsidized policies: $1.28 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.89 billion. 

Year: 2009: 

Low; 
Estimated forgone premiums for remaining subsidized policies: $1.06 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.73 billion. 

High; 
Estimated forgone premiums for remaining subsidized policies: $1.31 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.90 billion. 

Year: 2010: 

Low; 
Estimated forgone premiums for remaining subsidized policies: $1.12 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.76 billion. 

High; 
Estimated forgone premiums for remaining subsidized policies: $1.39 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.94 billion. 

Year: 2011: 

Low; 
Estimated forgone premiums for remaining subsidized policies: $0.91 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.62 billion. 

High; 
Estimated forgone premiums for remaining subsidized policies: $1.12 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.76 billion. 

Year: 2012: 

Low; 
Estimated forgone premiums for remaining subsidized policies: $0.91 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.62 billion. 

High; 
Estimated forgone premiums for remaining subsidized policies: $1.11 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.76 billion. 

Year: 2013: 

Low; 
Estimated forgone premiums for remaining subsidized policies: $0.80 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.56 billion. 

High; 
Estimated forgone premiums for remaining subsidized policies: $0.98 
billion; 
Estimated forgone premiums for subsidized policies subject to 25 
percent annual increases: $0.69 billion. 

Source: GAO analysis of FEMA data. GAO-15-111. 

Note: FEMA officials noted that its statements about the size of the 
subsidy that we used for these estimates should not be considered 
definitive or precise. Additionally, FEMA has had subsidized policies 
since program inception, but we limited our analysis to 2002-2013 
because FEMA did not make such statements in earlier actuarial rate 
reviews and data to determine if a residential policy was for a 
primary residence (key information to determine if it would retain a 
subsidy after Biggert-Waters) were not reliable before 2002. Finally, 
these estimates do not take into account the possible effects of 
higher premiums on program participation. We include all 
nonresidential properties in our estimate of subsidized policies 
subject to 25 percent annual increases, which may be an overestimate. 
While Biggert-Waters requires FEMA to phase out subsidies for business 
properties with 25 percent annual increases, FEMA does not yet have 
the information required to distinguish between businesses and other 
nonresidential properties such as churches or schools. 

[End of figure] 

We estimated forgone premiums for the remaining subsidized policies 
would have been $11-14 billion during 2002-2013, again using FEMA's 
statement that subsidized premiums cover 45-50 percent of long-term 
expected losses. As FEMA also would have incurred additional expenses 
if it had been able to collect the forgone premiums, we estimated that 
FEMA might have had $8-9 billion in premiums net of expenses. This 
portion could have been available for losses or debt repayment. This 
estimate is lower than our estimates from the second calculation 
because it includes only a subset of the subsidized policies--those 
that remained subsidized after the Biggert-Waters Act and HFIAA 
changes. 

Fourth Estimation of Forgone Premiums Not Viable Due to Unreliable 
Premium Data and Insufficient Controls Surrounding Implementation of 
Data System Changes: 

FEMA did not proactively validate or monitor implementation of data 
system changes, which resulted in unreliable premium data that were 
unable to be used for a fourth estimation of forgone premiums. FEMA 
needed to modify its data system to implement the changes required in 
the Biggert-Waters Act, but did not have sufficient controls in place 
to validate that the changes made were complete and accurate. FEMA 
provided the contractor that maintains its policy data system 
instructions for changes in the system, including adding new data 
fields (such as the date of purchase), adding new risk-rating methods 
to calculate premiums for policies affected by the Biggert-Waters Act, 
and developing new edit checks. For example, because FEMA had to 
charge full-risk rates for policies that previously would have 
qualified for subsidized rates, changes had to be programmed into the 
system to identify and require elevation certificates for the affected 
policies (both new and renewing). Software vendors that WYOs and 
FEMA's direct agent use to assist them with servicing flood insurance 
policies also received these instructions.[Footnote 36] FEMA also 
published a new Flood Insurance Manual that included updated rate 
tables and instructions on rating these policies. According to its 
usual process, FEMA released instructions for most of the changes 6 
months before changes were to be effective. FEMA also issued three 
additional sets of changes at 5 months, 3 months, and 2 months before 
changes were to be effective. In total, FEMA released more than 350 
pages of instructions to the contractor and vendors, the most changes 
released in the last several years. The changes became effective on 
October 1, 2013. 

In an attempt to illustrate forgone premiums, we analyzed over 260,000 
pre-FIRM policies for primary residences sold between the date these 
changes were effective (October 2013) and the enactment of HFIAA 
(March 2014) and found discrepancies in premium data for some of these 
policies. To illustrate how forgone premiums could be measured 
accurately if flood risk information were available for subsidized 
policies, we planned to compare the reported full-risk premiums in the 
data system with hypothetical subsidized premiums we could calculate 
based on policy information in the data. However, our preliminary 
results revealed discrepancies in FEMA's reported premiums for some of 
these policies. These discrepancies, as well as limited monitoring of 
the contractor's progress toward completion of data system changes, 
called into question the reliability of the reported premium data in 
the system and prevented completion of our analysis. Specifically, 

* Some policyholders who should have paid full-risk rates after the 
Biggert-Waters Act were inaccurately charged subsidized rates. 
According to our analysis, 49 percent of the new policies that should 
have paid full-risk rates from October 1, 2013, through February 28, 
2014, were charged subsidized rates instead.[Footnote 37] We found 
that more than 20 WYOs inaccurately charged subsidized rates for 
policies rather than full-risk rates, but most of the policies were 
sold by a few WYOs and FEMA's direct agent. FEMA also found these 
errors during its annual operational review of the direct agent about 
6 months after the changes were effective. According to FEMA, no 
corrections were made to the affected policies because by that time 
HFIAA had been enacted which reinstated subsidies for this category of 
policies. FEMA officials stated that most of these errors were 
attributable to software provided by the company that is both the 
direct agent to FEMA and a software vendor for WYOs. FEMA officials 
stated that the vendor subsequently made the necessary corrections to 
its software. Although FEMA officials said that they did not suspect 
problems with additional vendors, we could not verify this because we 
did not have information on which vendor software was used by each WYO. 

* FEMA's standard controls for its data system did not detect or 
report erroneous premium rates submitted by WYOs and FEMA's direct 
agent and policyholders were under-or overcharged. Typically, FEMA's 
data system, which is administered by a contractor, automatically 
checks the premiums submitted by WYOs or its direct agent when rating 
a new or renewed policy. If a discrepancy is detected, an error code 
is generated and sent to the WYO or the direct agent for correction. 
However, for one class of policies in our analysis--new policies that 
were rated using one of the new Biggert-Waters Act-related risk-rating 
methods to calculate premiums--our preliminary results showed that 
about 28 percent of these policyholders paid at least 5 percent more 
in premiums than they should have, or paid at least 5 percent less in 
premiums than they should have based on the rates available in FEMA's 
data.[Footnote 38] Additionally, for another class of policies--those 
rated tentatively or provisionally (about 4,400 policies--about 2 
percent of policies in our analysis)--about 45 percent of policies 
analyzed had premiums that were off by more than 5 percent based on 
the rates available in FEMA's data.[Footnote 39] Including both of 
these groups, more than 30,000 policies were affected. FEMA officials 
acknowledged these errors. Automatic edit checks were not performed on 
these policies, so the system did not detect or report these errors. 
After we discussed these discrepancies with FEMA officials, they 
conducted an inquiry with the contractor in August and September 2014. 
As a result, the contractor informed FEMA that it had not implemented 
all the required system changes before the effective date and that it 
had disabled some automatic edit checks. According to documentation 
from the contractor, the contractor did not sufficiently communicate 
either issue to FEMA. Because the edit checks were inoperative, FEMA 
did not receive complete error reports and its controls, such as 
monitoring data system error rates and reviewing error reports, did 
not identify any problems. In response, FEMA required the contractor 
to implement the changes within 10 days or be in violation of the 
contract. Changes included implementing automatic checks on premiums 
calculated using the new Biggert-Water Act rating methods and enabling 
error checks on new data fields (such as the date of purchase). 
[Footnote 40] According to contractor documentation, the contractor 
implemented most of the changes as of September 2014. As of October 
2014, FEMA had not yet verified these changes. 

* FEMA's monitoring was not sufficient to identify problems with the 
contractor's implementation of system changes before changes were 
effective. FEMA has processes in place to monitor contractor 
performance, but monitoring reports provided minimal information on 
the progress of the data system changes. For example, the contractor 
submits weekly performance reports and presents information from these 
reports in monthly reports that are reviewed by FEMA contracting 
office staff and the contracting officer's representative. The reports 
also are available to management. The monthly reports track risks and 
issues associated with selected objectives, key milestones, and the 
progress toward completion of these objectives. We reviewed the 
reports from April 2013 through June 2014 and found that the weekly 
contractor performance reports included documentation of FEMA 
providing the contractor clarifications. However, the reports included 
minimal information on the progress of the implementation of the data 
system changes--stating, for example that programming changes were 
continuing--with many weeks passing without updates. Furthermore, the 
monthly reports that are available for management to review did not 
track the status of the data system changes. Following FEMA's inquiry 
about the data discrepancies described previously, the contractor 
informed FEMA that 50 percent of the changes scheduled to be effective 
on October 1, 2013, had been implemented by the required date and 70 
percent of the changes scheduled to be effective on June 1, 2014, had 
been implemented by the required date. 

Federal internal control standards and FEMA's data system manual and 
contracting officer's representative handbook provide guidelines for 
controls and monitoring. For example, the internal control standards 
and data system manual state that error checks should be implemented 
to help ensure the accuracy of data being entered and that changes 
should be verified. Specifically, according to federal internal 
control standards, data validation and edit checks should be performed 
at all interfaces with other systems to identify erroneous data. 
[Footnote 41] Erroneous data should be captured, reported, 
investigated, and promptly corrected, according to internal controls 
and FEMA's data system manual. In addition, controls should be in 
place to determine whether changes to technology have been made 
properly. This may involve reviewing changes and testing results. 
Further, FEMA's data system manual states that a system check (to 
verify the premium) is to be performed for all policies that have the 
data required to calculate the premium.[Footnote 42] Errors associated 
with this verification should be noted on the file. Regarding 
monitoring, FEMA's handbook for contracting officer's representatives 
states that these representatives are responsible for monitoring the 
contractor's compliance with all requirements of the statement of work 
and reporting any potential or existing problems. Such monitoring 
enables the agency to ensure progress toward completion of the 
contractor's specific requirements. One objective in the data 
contractor's statement of work is implementing data system changes as 
required. 

FEMA provided the contractor, WYOs, and vendors with instructions for 
implementing changes, including adding edit checks for new data 
elements, but its controls were not sufficient to identify problems 
with the contractor's and vendors' implementation of the changes 
before the changes were effective. 

* FEMA did not verify the contractor's implementation of programming 
changes and edit checks before the rating changes became effective. 
FEMA officials told us they provided the contractor and vendors the 
requirements 6 months before they were to be effective--which is the 
typical process--and that regular reports from the contractor and 
other correspondence with the contractor to provide clarifications did 
not indicate any problems or delays with implementation of the 
changes. Further, FEMA did not take any additional steps to ensure 
that the contractor had implemented the data system changes until 
August after we identified a number of discrepancies. 

* FEMA does not verify that changes in vendors' software that assists 
agents in generating rates are correctly implemented before the 
changes are effective. FEMA officials said that the WYOs and FEMA's 
direct agent are responsible for monitoring their software vendors and 
that FEMA does not have direct oversight. 

FEMA officials noted that they rely on processes such as data system 
monitoring and error report reviews to identify errors from the 
contractor or vendors, and that they did not identify these errors 
sooner because edit checks were inoperable. Documentation from the 
contractor in response to FEMA's August and September 2014 inquiries 
states that it revised the edit check strategy without FEMA's approval. 

In addition to insufficient controls, FEMA's monitoring reports did 
not contain sufficient information to identify problems with the 
implementation of the changes before the changes were effective. FEMA 
maintained documentation of change requests and responses provided to 
the contractor's questions and has regular reports from the contractor 
to monitor performance, but these documents did not capture critical 
information needed to oversee the contractor's progress toward 
completion of the data system changes. For example, the template for 
monthly monitoring reports includes tracking of key milestones and 
status of the percentage complete, but FEMA did not direct the 
contractor to track the progress of implementing data system changes 
in these reports, even though the number of required data system 
changes was the most changes released in the last several years. 

As a result of not proactively monitoring or verifying the 
implementation of data system changes, premium data for the policies 
between the implementation of the Biggert-Waters Act and enactment of 
HFIAA were unreliable and some policyholders were charged inaccurate 
rates. We determined that the premium data for these policies did not 
meet GAO reliability standards for our planned analysis to illustrate 
forgone premiums. In addition, FEMA officials stated that they used 
the data from this time period to characterize policies that 
previously qualified for subsidies but were charged full-risk rates. 
Because of inaccuracies in these data, FEMA cannot rely on these data 
for business planning or other purposes. Furthermore, because WYOs and 
FEMA's direct agent did not consistently apply rating changes between 
the implementation of the Biggert-Waters Act and enactment of HFIAA, 
our analysis shows that subsidized rates were incorrectly applied to 
at least 50,000 policies that should have been charged full-risk 
rates, and at least 30,000 other policyholders were over-or 
undercharged. The financial impact to NFIP of these inaccurate rates 
may have been negligible because HFIAA repealed many of the Biggert-
Waters Act immediate subsidy removal provisions and required refunds 
to policyholders who again qualified for subsidized rates.[Footnote 
43] However, the errors demonstrate that FEMA lacks sufficient 
controls over implementing changes to its data system. Without 
validating that the contractor and vendors have fully implemented 
changes and edit checks before processing refunds (scheduled for 
October through December 2014) and making additional changes 
associated with HFIAA (scheduled for April 2015), FEMA risks further 
inaccuracies in its data. In addition, without monitoring progress 
toward completion of data system changes, FEMA may not be aware of the 
full extent of problems its typical error reports may identify and 
would have inadequate information to oversee the performance of the 
contract. 

Conclusions: 

Our analysis shows that forgone premiums associated with subsidies 
could be as much as $1 billion dollars a year, but our estimates are 
imprecise because of the lack of information on policies' flood risk. 
FEMA agreed with our previous recommendation (from July 2013) that it 
develop and implement a plan to obtain information on the relative 
risk of flooding and property elevations for subsidized policies. We 
acknowledge the difficulty and expense involved in obtaining precise 
flood risk information, but maintain the position that our 
recommendation is valid and should be fully implemented because the 
number of subsidized policies could grow under HFIAA. Flood risk 
information (such as from elevation certificates) is needed to 
correctly charge full-risk rates to an increasing number of policies 
as FEMA phases out subsidies, but FEMA continues to rely on 
policyholders to voluntarily submit it. In addition, such information 
could help FEMA provide policyholders information about their flood 
risk as required by HFIAA. 

FEMA did not proactively validate or monitor the implementation of 
large-scale changes to its data system before the rating changes 
became effective, and the reliability of premium data and other 
information submitted to its system was compromised. In addition, FEMA 
was unaware of the extent of delays and errors in its data system. 
Federal internal control standards call for agencies to have controls 
in place to help ensure the accuracy of all transactions and to 
determine if data system changes have been made properly. FEMA's 
contracting officer's representative handbook also states that a 
contractor's performance should be monitored to ensure progress toward 
completion of specified requirements. However, FEMA lacked sufficient 
controls to oversee its contractor's and software vendors' 
implementation of data system changes before the changes were 
effective and therefore premium data and other information on policies 
subject to full-risk rates between October 1, 2013, and March 21, 2014 
(the enactment of HFIAA) are unreliable. The consequences of the data 
unreliability are broad, affecting programmatic decision making (such 
as rate setting), accuracy of policyholders' rates, and stakeholders 
that rely on the accuracy of FEMA's data. Moreover, FEMA is planning 
further changes to its system in 2015. Monitoring progress toward 
completion and adding controls, such as data validation, as FEMA 
processes refunds and implements the additional changes can help 
ensure proactively that accurate data on policies are recorded, 
policyholders are charged appropriate rates, and inaccuracies are not 
further propagated in FEMA's data system. 

Recommendations for Executive Action: 

To better ensure that future data system changes are fully and 
accurately implemented before they become effective, we recommend that 
the Secretary of the Department of Homeland Security (DHS) direct the 
FEMA Administrator to take the following three actions: 

* Institute internal controls, such as testing a sample of policies, 
to validate that the data system contractor fully implemented changes 
and edit checks before program changes become effective. 

* Obtain information verifying the status of software vendors' 
implementation of program changes in their systems before program 
changes become effective. For example, this could include instructing 
WYOs and the direct agent to include controls or status updates in the 
terms of work or contracts with their software vendors. 

* Require the data system contractor to include detailed information 
on the progress toward completion of major data system changes in 
regular monitoring reports, such as weekly status updates and monthly 
reports. 

Agency Comments: 

We provided a draft of this report to FEMA within DHS for its review 
and comment. DHS provided written comments that are presented in 
appendix II. In its letter, DHS concurred with our three 
recommendations and has begun taking actions to address two. First, to 
respond to the recommendation for internal controls to validate system 
changes, FEMA has instituted a test plan that will be used to validate 
the October 2013 and June 2014 system changes as well as future 
changes. Second, to respond to the recommendation for enhanced 
reporting by the data system contractor, FEMA has been developing a 
standard operating procedure to monitor progress toward completion of 
major data system changes. In addition, DHS stated that FEMA will work 
with the WYOs to obtain information on the status of their vendors' 
implementation of system changes beginning with changes scheduled for 
April 2015. FEMA also provided technical comments, which we have 
incorporated in the report, as appropriate. 

We are sending copies of this report to the appropriate congressional 
committees and the Secretary of Homeland Security. In addition, the 
report is available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov]. 

If you have any questions about this report, please contact me at 
(202) 512-8678 or cackleya@gao.gov. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff who made key contributions to this 
report are listed in appendix III. 

Signed by: 

Alicia Puente Cackley 
Director, Financial Markets and Community Investment: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

The Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters 
Act) mandated that we conduct a number of studies about the National 
Flood Insurance Program (NFIP), including a study on the cost of 
forgone premiums of the properties that receive subsidized rates. 
[Footnote 44] This report discusses the estimated forgone premiums for 
subsidized policies during 2002-2013, and issues we identified 
surrounding modifications made to the Federal Emergency Management 
Agency's (FEMA) data system to implement changes required under the 
Biggert-Waters Act.[Footnote 45] 

To estimate forgone premiums, we compiled information on premiums from 
the NFIP policy databases of FEMA, and information on expenses and 
published statements regarding the size of the subsidy from FEMA's 
actuarial rate review documents. First, to obtain the number and 
premiums associated with all NFIP policies, all subsidized policies, 
and subsidized policies that would continue to receive subsidized 
premium rates (those not subject to 25 percent annual increases) after 
the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA), we 
analyzed data from NFIP's policy database. These data represent 
snapshots from the end of fiscal years 2002-2013. We applied the same 
algorithm that FEMA used to determine which policies were subsidized 
before the Biggert-Waters Act, and applied FEMA's interpretation of 
the provisions in the Biggert-Waters Act that eliminated subsidies and 
the provisions in HFIAA that restored subsidies. We adjusted all 
premium amounts for each year into 2014 dollars by applying gross 
domestic product (GDP) price indexes provided by the Bureau of 
Economic Analysis. Second, to determine the percentage of NFIP 
premiums required for fixed and variable expenses for each year, we 
obtained historical information on NFIP expenses for 2002-2011, and 
projected expenses information for 2012-2013 from FEMA's actuarial 
rate reviews.[Footnote 46] Third, to obtain FEMA-published information 
on the size of the subsidy, we compiled the percentage amounts for the 
following statements from FEMA's actuarial rate reviews for 2002-2013: 

* If subsidies were eliminated, aggregate NFIP premiums would increase 
by 50-75 percent after expenses.[Footnote 47] 

* Subsidized premiums, on average, cover 45-50 percent of expected 
full-risk losses after expenses.[Footnote 48] 

With all information compiled, for each year, we selected the relevant 
premiums (premiums from all NFIP policies, all subsidized policies, 
and subsidized policies that would continue to receive subsidized 
premium rates after HFIAA), and applied the FEMA statements about the 
size of the subsidy to three calculations to estimate forgone 
premiums. First, we used aggregate NFIP premiums and FEMA's statement 
that if subsidies were eliminated, overall NFIP premiums would 
increase by 50-75 percent after expenses. Second, we used all 
subsidized premiums and FEMA's statement that subsidized premiums, on 
average, cover 45-50 percent of full-risk losses. Third, we used 
subsidized premiums for the portion of subsidized policies with 
characteristics that would have allowed them to receive subsidies 
after HFIAA and the same statement that subsidized premiums, on 
average, cover 45-50 percent of full-risk losses. 

Using the relevant premiums we performed the following: 

* To estimate the high and low values of the range for forgone 
premiums net of expenses for each year for the first calculation, we 
subtracted expenses from the premiums collected and multiplied the 
result by the high and low values of the percentage range. 

* To estimate the high and low values of the range for forgone 
premiums net of expenses for each year for the second and third 
calculations, we subtracted expenses from the premiums collected 
(premiums collected net of expenses) and divided the premiums 
collected net of expenses by the high and low values of the percentage 
range. We then subtracted premiums collected net of expenses from the 
result. 

* To estimate the high and low values of the range for forgone 
premiums for each year for each calculation, we increased the high and 
low values of the range for forgone premiums net of expenses by the 
variable expense percentage. 

* Finally, to estimate the high and low values of the range for 
forgone premiums and forgone premiums net of expenses for 2002-2013 
for each calculation, for all years we added the low-range values 
together and the high-range values together. 

We assessed the reliability of FEMA's policy and expense data by 
gathering and analyzing available information about how the data were 
created and maintained and performed electronic tests of required data 
elements of the policy data. We determined that these policy and 
expense data were sufficiently reliable to use for the three 
calculations described above. FEMA officials said that the statements 
about the size of the subsidy should not be considered precise or 
definitive. They stated they based their statements about the size of 
the subsidy for 2002 on their analysis of a 1999 
PricewaterhouseCoopers (PwC) report that sampled structures around the 
nation that were built before flood insurance rate maps (FIRM) became 
available, determined their flood zones, elevations relative to base 
flood elevation (BFE), and full-risk rates, and then projected a 
nationwide distribution of the policies. FEMA officials stated that 
they used professional judgment to make adjustments to the statements 
about the size of the subsidy for 2003-2013 based on how rate 
increases for subsidized policies compared with inflation. FEMA 
officials stated that these statements were the only information 
available on the size of the subsidy. Therefore, we used them, but we 
added caveats to our estimate and noted the several limitations to 
using these statements to produce our estimates. First, as previously 
noted, FEMA officials said the statements should not be considered 
definitive or precise; therefore, our estimates also are not precise. 
Second, relying on these statements limited the scope of our analysis 
because FEMA did not include these statements before 2002. Therefore, 
we could not estimate the total historic forgone premiums of these 
subsidies and limited our scope to 2002-2013. In the past, FEMA had 
subsidized a much larger percentage of policies (about 76 percent in 
1978, compared with 21 percent in 2013), so current estimates should 
not be applied to previous years. Third, FEMA's statements do not 
account for any changes in program participation that could result 
from increasing the premium rates of subsidized policies to full-risk 
rates. 

Additionally, we attempted to calculate hypothetical subsidized 
premiums for primary residential policies that for a short, recent 
period paid full-risk rates but that would have qualified for 
subsidies before the Biggert-Waters Act. We planned to compare the 
hypothetical premiums with the full-risk premiums policyholders 
actually paid. FEMA began charging full-risk rates to new policies in 
this category on October 1, 2013, but HFIAA (enacted in March 2014) 
repealed the provision to charge full-risk rates to these policies. 
Therefore, for these calculations, we used FEMA's policy rating 
methodology and obtained NFIP policy data as of February 28, 2014, and 
selected policy records with effective dates from October 1, 2013, 
through February 28, 2014. To select records that would have qualified 
for a subsidy before the Biggert-Waters Act, we applied a modified 
version of FEMA's algorithm to determine which policies were pre-FIRM, 
primary residence policies in special flood hazard areas without 
consideration of elevation.[Footnote 49] We used two methodologies to 
determine which policies were new and therefore immediately subject to 
full-risk rates; however, changes affecting data fields we used in 
these methodologies were among those that had not been implemented by 
the contractor, thus impacting our ability to complete the analysis. 
First, we used FEMA's rating method field that would indicate 
(according to FEMA documentation) that the policy was affected by the 
Biggert-Waters Act. Using this method, we found the policies that FEMA 
officials acknowledged had been erroneously charged subsidized rates. 
Second, at FEMA officials' suggestion, we used a data field that would 
indicate a new policy and the new purchase date field. Similarly, we 
found that many policies had been charged subsidized rates and that 
the new purchase date field was unreliable because of either missing 
or invalid data for more than 95 percent of the policies. Therefore, 
without a valid methodology for selecting policies and without 
reliable premium data, we were not able to complete our analysis. 

To determine subsidized rates that each policy holder would have paid, 
we used FEMA's premium rate tables and rating methodology for its 
flood insurance manual effective October 1, 2013, and variables in the 
data to select the proper basic and additional coverage rates for 
building and contents coverage for each policy. To calculate the 
subsidized premiums, we first added (1) the basic building rate 
multiplied by the amount of building coverage, up to the basic 
insurance limit; (2) the additional building rate multiplied by the 
amount of additional building coverage; (3) the basic contents rate 
multiplied by the amount of contents coverage up to the basic 
insurance limit; and (4) the additional contents coverage rate 
multiplied by the amount of additional contents. Second, we multiplied 
the result by the deductible factor and added the Increased Cost of 
Compliance (ICC) premium.[Footnote 50] Third, we subtracted the 
Community Rating System (CRS) discount, and added the probation 
surcharge and federal policy fee.[Footnote 51] 

To determine which policies were paying full-risk rates, for each 
record, we compared our determined building and contents basic rates 
to those assigned in the data. We considered those that matched to be 
subsidized and would have removed them from further analysis. However, 
we identified a number of discrepancies in the data and determined 
that the data were not sufficiently reliable to be used for this 
analysis. For example, using either methodology for selecting new 
policies resulted in more than 45 percent of policies receiving 
subsidized rather than full-risk rates. Additionally, some policies 
that had rate matches did not match on premium. We therefore 
calculated a premium based on FEMA's rates and found additional 
problems with the premiums in the data. As policy selection and the 
reliability of the reported full-risk premiums were critical to our 
analysis, we determined the data to be unreliable for this analysis. 

We reported these and additional discrepancies to FEMA officials. FEMA 
conducted an inquiry with the data system contractor. As a result, the 
contractor informed FEMA that several requirements for changes that 
should have been in place by October 2013 had not been implemented, 
including system checks on new fields and checks on reported premiums 
for certain policies.[Footnote 52] Additionally, FEMA officials stated 
that they had found vendor issues in an operational review in April 
that showed that not all vendors had the October 2013 changes in 
place. We also analyzed recent NFIP legislation and examined FEMA's 
implementation of legislative requirements authorizing subsidized 
rates for certain properties in high-risk locations. To calculate the 
number of annual rate increases required for subsidized premium rates 
to reach full-risk rates, we used FEMA's building coverage rates for 
subsidized and full-risk rates effective March 21, 2014--FEMA's most 
recent published rates for policies below BFE at the time of analysis. 
To adjust full-risk rates by inflation, we applied FEMA's full-risk 
rate amounts for building coverage for properties in AE flood zones at 
BFE, at 2 feet below BFE, at 5 feet below BFE, and at 10 feet below 
BFE by the gross domestic product (GDP) price index for each of the 
next 30 years.[Footnote 53] To calculate the yearly subsidized rates 
after increases, we annually increased the subsidized rate amounts for 
building coverage by 5 percent, 15 percent, and 25 percent. To 
determine the number of years before the subsidized rate reached the 
full-risk rates at the same elevations, for each year we compared the 
increased subsidized rate with the inflation-adjusted full-risk rate, 
noting when the subsidized rate exceeded the full-risk rate at each 
elevation. In addition, to determine the extent that status 
information was required and present in contractor reports, we 
analyzed the statement of work for the contract and status documents 
prepared by the contractor and FEMA from April 2013 through June 2014. 
Finally, we interviewed FEMA actuaries, underwriters, and program 
management. 

We conducted this performance audit from May 2014 to December 2014 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Comments from the Department of Homeland Security: 

U.S. Department of Homeland Security: 
Washington, DC 20528: 

November 25, 2014: 

Alicia Puente Cackley: 
Director, Financial Markets and Community Investment: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Re: Draft Report GAO-15-111, "Flood Insurance: Foregone Premiums 
Cannot Be Measured and FEMA Should Validate and Monitor Data System 
Changes" 

Dear Ms. Cackley: 

Thank you for the opportunity to comment on this draft report. The 
U.S. Department of Homeland Security (DHS) appreciates the U.S. 
Government Accountability Office's (GAO's) work in planning and 
conducting its review and issuing this report. 

The Department is pleased that GAO acknowledges the difficulty and 
expense of obtaining precise flood risk information. FEMA's Federal 
Insurance and Mitigation Administration (FIMA) is currently evaluating 
different approaches for obtaining the risk information without 
requiring policyholders to incur the cost of obtaining Elevation 
Certificates. Currently, elevation certificates are the only means to 
obtain flood risk data for all National Flood Insurance Program (NFIP) 
policyholders. Alternatives such as digital Flood Insurance Rate Map 
Base Flood Elevation data and Light Detection and Ranging elevation 
data are not available for all NFIP communities. 

The draft report contained three recommendations with which the 
Department concurs. Specifically, GAO recommended that the Secretary 
of Homeland Security direct the FEMA Administrator to: 

Recommendation 1: Institute internal controls, such as testing a 
sample of policies, to validate that the data system contractor fully 
implemented changes and edit checks before program changes become 
effective. 

Response: Concur. FEMA has instituted a test plan to validate future 
system changes before they become effective. FEMA's FIMA will use this 
test plan to validate the October 2013 and June 2014 changes. 
Estimated Completion Date (ECD): December 31, 2014. 

Recommendation 2: Obtain information verifying the status of vendors' 
implementation of program changes in their systems before program 
changes become effective. For example, this could include instructing 
WYOs and the direct agent to include controls or status updates in the 
terms of work or contracts with their software vendors. 

Response: Concur. FEMA's FIMA will work with the Write Your Own (WYOs) 
to obtain information on the status of their implementation of system 
changes beginning with the April 2015 program changes and will report 
on the implementation of these changes. ECD: To Be Determined. 

Recommendation 3: Require the data system contractor to include 
detailed information on the progress toward completion of major data 
system changes in regular monitoring reports, such as weekly status 
update and monthly reports. 

Response: Concur. FEMA's FIMA expects to complete development of a 
standard operating procedure to monitor progress toward completion of 
major data system changes. ECD: December 31, 2014. 

Again, thank you for the opportunity to review and comment on this 
draft report. Technical comments were previously provided under a 
separate cover. Please feel free to contact me if you have any 
questions. We look forward to working with you in the future. 

Sincerely, 

Signed by: 

Jim H. Crumpacker, CIA, CFE: 
Director: 
Departmental GAO-OIG Liaison Office: 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Alicia Puente Cackley, (202) 512-8678 or cackleya@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Jill Naamane (Assistant 
Director); Karen Jarzynka-Hernandez (Analyst-in-Charge); Pamela 
Davidson; Catrin Jones; May Lee; Barbara Roesmann; Jessica Sandler; 
Jena Sinkfield; Frank Todisco; and Jack Wang made key contributions to 
this report. 

[End of section] 

Footnotes: 

[1] Pub. L. No. 90-448, Tit. XIII, 82 Stat. 476, 572 (1968). 

[2] Actuarial Standards of Practice note that "actuarial soundness" 
has different meanings in different contexts, and state that if an 
actuary identifies a process or result as actuarially sound, the 
actuary should define the meaning of actuarially sound in that 
context. For this report, in referring to NFIP as not actuarially 
sound, we mean that its aggregate premiums, after providing for 
program expenses, are not at a sufficient level to cover actuarial 
estimates of the program's long-term expected losses. 

[3] Every 2 years, we provide Congress with an update on our High-Risk 
Program, which highlights major areas that are at high risk for fraud, 
waste, abuse, or mismanagement, or need broad reform. See GAO, High-
Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-13-283] (Washington, D.C.: Feb. 14, 
2013). 

[4] Pub. L. No. 112-141, §100205, 126 Stat. 405, 917 (2012), codified 
as amended at 42 U.S.C. § 4014(a)(2) and (g). 

[5] For single-family properties, severe repetitive loss properties 
are those that have incurred four or more claim payments exceeding 
$5,000 each, with a cumulative amount of such payments over $20,000; 
or at least two claims with a cumulative total exceeding the value of 
the property. For multifamily properties, FEMA will define the term by 
regulation. 42 U.S.C. § 4014(h). 

[6] Pub. L. No. 113-89, 128 Stat. 1020 (2014). 

[7] Pub. L. No. 112-141, §100231. In response to the Biggert-Waters 
Act we issued a report on the properties that continue to qualify for 
subsidies after implementation of the act. See GAO, Flood Insurance: 
More Information Needed on Subsidized Properties, [hyperlink, 
http://www.gao.gov/products/GAO-13-607] (Washington, D.C. July 3, 
2013). 

[8] In this report, we define forgone premiums as the difference 
between subsidized premiums and premiums that would be required to 
cover the full-risk of losses for these policies. FEMA is authorized 
by statute to offer subsidized premiums to encourage program 
participation. Had subsidized premiums been eliminated, the increased 
cost may have affected policyholder decisions on the amount of 
coverage and whether to purchase the insurance. Thus, FEMA would not 
have automatically collected the full amount of the estimated forgone 
premiums. 

[9] These statements were included in FEMA's actuarial rate reviews 
for 2002-2013.The mandate required that we determine forgone premiums 
since the beginning of the program. However, the information required 
to determine full-risk premiums is not available for any time period 
and information required to estimate forgone premiums did not exist 
before 2002. 

[10] The National Flood Insurance Act of 1968 established NFIP. Pub. 
L. No. 90-448, Tit. XIII, § 1301 et seq., 82 Stat. 476, 572 (1968). 

[11] Pub. L. No. 93-234, 87 Stat. 975 (1973). The Housing and 
Community Development Act of 1977 amended the 1973 Act to permit 
regulated lending institutions to make conventional loans in SFHAs of 
nonparticipating communities. 

[12] Pub. L. No. 103-325, § 522, 108 Stat. 2160, 2257 (1994). 

[13] FEMA does not categorize policies with grandfathered rates--rates 
that were not changed after properties were remapped into higher-risk 
flood zones--as "subsidized" because they are within classes of 
policies that are not subsidized for the class as a whole. However, 
FEMA officials acknowledged that property owners who obtain 
grandfathered rates are cross-subsidized by other policyholders in the 
same flood zone. That is, other policyholders pay higher rates to 
cover the shortfall in premiums from grandfathered policies not being 
charged rates that accurately reflect the flood risk. The focus of 
this report is subsidized policies as defined by FEMA's 
categorization, and thus excludes grandfathered policies. 

[14] FEMA subsidizes policies for other properties--for example, 
properties behind certain unfinished or de-accredited levees, certain 
properties built after the initial FIRMs became available, and 
emergency program properties. 

[15] Actions taken to reduce flood risk are known as mitigation. 
According to FEMA, key mitigation steps for residential properties 
include elevating a building to or above the area's base flood 
elevation, relocating the building to an area of lower flood risk, or 
demolishing the building and turning the property into green space. A 
community also can take steps to reduce flood risk to an area by 
diverting the flow of water through well-designed channels and 
retaining walls, or by containing the water through ponds. Policies 
that are remapped to a higher flood risk may have been built at or 
above the BFE associated with their previous flood risk level, but are 
below the BFE associated with their new risk level. Some of these 
policies may qualify for rates at their previous risk level 
(grandfathered rates). 

[16] FEMA, National Flood Insurance Program: Flood Insurance Manual, 
June 2014, Revised October 2014 (Washington, D.C.: August 2014). 

[17] The Biggert-Waters Act also prohibited subsidies for properties 
that were not insured as of July 6, 2012, or on properties for any 
prospective insured who refuses to accept any offer for mitigation 
assistance by FEMA following a major disaster or in connection with a 
repetitive loss or severe repetitive loss property. 

[18] In addition to these changes, HFIAA also requires FEMA to refund 
to policyholders premiums paid after July 2012 that exceed the 
subsidized premiums permissible under HFIAA. Pub. L. No. 113-89 § 3, 
128 Stat. 1020, 1021 (2014). 

[19] The Biggert Waters Act defined "substantial damage" as "exceeding 
50 percent of fair market value" and "substantial improvement" as 
"exceeding 30 percent of fair market value." HFIAA changed this latter 
threshold from 30 percent to 50 percent. Pub. L. No. 113-89, § 15, 128 
Stat. at 1026. 

[20] Pub. L. No. 113-89, §§ 5, 128 Stat. at 1022. As of October 2014, 
FEMA twice had increased the subsidized rates by 25 percent for 
nonprimary residences and once for nonresidential and severe 
repetitive loss properties. Although businesses should be subject to 
the 25 percent rate increases, FEMA plans to refund a portion of the 
increase to all nonresidential properties--HFIAA allowed a maximum 
property-specific increase of 18 percent for most types of properties. 
FEMA does not yet have the information needed to distinguish 
businesses from other types of nonresidential properties, such as 
schools or churches. Our percentage may be an overestimate because it 
includes all nonresidential policies. 

[21] For operational reviews, FEMA examiners are to perform a thorough 
review of the companies' NFIP underwriting and claims settlement 
processes and internal controls, including checking a sample of claims 
and underwriting files to determine, for example, whether a violation 
of policy has occurred, an incorrect payment has been made, and if 
files contain all required documentation. 

[22] FEMA also receives appropriations for some flood mapping and 
mitigation activities. 

[23] Debt repayment includes interest payments on accrued debt. 
According to FEMA officials, FEMA also can choose to preserve its cash 
balances for future losses to help avoid the need for future borrowing 
rather than make principal payments. 

[24] We currently have work under way examining FEMA's rate-setting 
process for subsidized and full-risk premiums. We plan to issue this 
report in 2015. 

[25] [hyperlink, http://www.gao.gov/products/GAO-13-607]. 

[26] The time required for subsidized rates to reach full-risk rates 
varies by flood zone, coverage amount, and elevation relative to BFE. 
At the level of the Biggert-Waters increases (which are 25 percent per 
year for certain properties) some policyholders will benefit from 
subsidized rates for another 6 to 12 years or more. For annual 
increases of 5-15 percent, phase-out times for subsidies will be 
longer. 

[27] Pub. L. No. 113-89, § 28. 128 Stat. 1020, 1033 (2014). 

[28] FEMA officials stated that this estimate actually represents the 
increase in aggregate premiums available to pay for losses and debt 
reduction. Officials said that they will change the language in future 
actuarial rate reviews to clarify the meaning of this percentage. FEMA 
initially estimated the percentage at 50-100 percent for 2002. 

[29] FEMA officials stated that the estimate actually represents the 
percentage of full-risk losses covered by the subsidized premium. 
Officials said that they will change the language in future actuarial 
rate reviews to clarify the meaning of this percentage. 

[30] FEMA's percentages in these statements have changed over time. 
FEMA estimated the percentage to be 35-40 percent for 2002-2010, 40-45 
percent for 2011-2012, and 45-50 percent for 2013. 

[31] PricewaterhouseCoopers LLP, FEMA: Study of the Economic Effects 
of Charging Actuarially Based Premium Rates for Pre-FIRM Structures 
(May 14, 1999). 

[32] FEMA did not make such statements in earlier rate reviews, so we 
could not estimate forgone premiums for the earlier decades of the 
program. Additionally, according to a FEMA official, data to determine 
if a residential policy was a primary residence--a key factor in 
determining if a policy would retain its subsidy after the Biggert-
Waters Act--were not reliable before 2002. 

[33] FEMA does not yet have the information needed to distinguish 
businesses from other types of nonresidential properties such as 
schools or churches. Subsidized premiums for remaining subsidized 
policies may be an underestimate because it does not include 
nonresidential subsidized policies that are not for businesses. 

[34] FEMA estimated the percentage at 50-100 percent in 2002. 

[35] FEMA percentages in these statements have changed over time. FEMA 
estimated the percentage to be 35-40 percent for 2002-2010, 40-45 
percent for 2011-2012, and 45-50 percent for 2013. 

[36] FEMA has no direct contractual relationship with the software 
vendors, but FEMA does have a contractual relationship with the WYOs 
and the FEMA direct agent. WYOs contract with the software vendors. 

[37] According to our analysis, more than 50,000 policies were charged 
subsidized rates rather than full-risk rates. After HFIAA these 
policies would again be eligible for subsidies. 

[38] About 110,000 policies--about 42 percent of policies in our 
analysis--were in this class of policies. 

[39] FEMA's direct agent and WYOs can use tentative and provisional 
rating methods to rate policies that require, but property owners have 
not provided, additional information, such as elevation information. 
Policies are re-rated once the insurer has received the information. 
Generally, FEMA set these rates to be more expensive than compliant 
full-risk rates. However, full-risk rates for properties with 
elevations below BFE may be more expensive than these rates. Tentative 
and provisional rating methods were in use prior to the Biggert-Waters 
Act, but their use likely grew because of the Biggert-Waters Act. 

[40] Some of the edits that were effective October 2013 were 
subsequently canceled effective June 2014 due to HFIAA. 

[41] GAO, Internal Control: Standards for Internal Control in the 
Federal Government, [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (Washington, D.C.: 
November, 1999). 

[42] FEMA does not use a system check to verify the premium for some 
specially rated policies because not all information used in rating 
the policy is reported in the data. 

[43] Pub. L. No. 113-89, § 3, 128 Stat. 1020, 1021 (2014). 

[44] Pub. L. No. 112-141, § 100231(c), 126 Stat. 405, 951 (2012). 

[45] The mandate required that we determine forgone premiums since the 
beginning of the program. However, the information required to 
determine full-risk premiums is not available for any time period and 
information required to estimate forgone premiums did not exist before 
2002. Additionally, we did not adjust our analysis for potential 
behavioral effects, such as decreased program participation, if 
historical rates had not been subsidized. 

[46] Historical expense data were not available for 2012-2013. 

[47] FEMA stated that if subsidies were eliminated, overall NFIP 
premiums would increase by 50-100 percent after expenses for 2002 and 
by 50-75 percent for 2003-2013. 

[48] FEMA stated that subsidized premiums after expenses, on average, 
covered 35-40 percent of expected full-risk losses for 2002-2010, 40-
45 percent for 2011-2012, and 45-50 percent for 2013. 

[49] FEMA's algorithm for determining whether a policy is subsidized 
includes a check for negative or unknown elevation relative to base 
flood elevation (BFE). We removed the step because in charging full-
risk rates FEMA would have collected elevation information required to 
rate the policy. 

[50] Under ICC, eligible policyholders can purchase coverage to help 
cover the cost of mitigation measures that may be required to restore 
a building after a flood claim. 

[51] Policies in communities that participate in the CRS program can 
qualify for premium discounts based on actions the community has taken 
to mitigate flood risk. The probation surcharge is a fee added to each 
policy within a community that is on probation within the program. The 
federal policy fee is a set amount charged to each policy that assists 
in covering fixed program expenses such as NFIP salaries. 

[52] Many changes that should have been in place by June 2014 also had 
not been implemented. 

[53] GDP price indexes were only available through 2024. For our 
analysis we extended these indexes to 2044 by assuming the rate of 
change for each subsequent year was equal to the change between 2023 
and 2024. 

[End of section] 

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