Summary

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

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

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Implemented" or "Not implemented" based on our follow up work.

Recommendations for Executive Action