Proposing group flood insurance policies for local governments

I’m going to throw out a new idea for the National Flood Insurance Program. I haven’t fully developed the details of the proposal but I want to put it out there for comments. First, a rather long preface to explain the need.

This proposal would address the very serious concern that every significant flood event causes flooding to many properties that do not have flood insurance coverage. The federal government ends up providing FEMA individual assistance, temporary housing, subsidized loans, and/or grant funds to help those homeowners recover and also has to provide more assistance to local governments, schools, businesses, etc. because the lack of insurance coverage delays the recovery of the local economy and tax base. (See the Hurricane Katrina figures for all that assistance in this post.)

Flood insurance is mandatory only for those properties that have federally-backed mortgages and are located within a mapped Special Flood Hazard Area (SFHA), also known as A-zones and V-zones or as the 100-year flood risk or the one-percent annual flood risk. If you don’t have a mortgage backed by the federal government, you are not required to buy flood insurance. If your house is outside the one-percent annual risk area, you are not required to buy flood insurance. Of course, whether or not you have a mortgage does not affect your risk of flooding, and mapping the one-percent flood risk is an extremely inexact science, so after every major flood event it is common for 25% or more of the flooded properties to have no flood coverage. Flood risk is very difficult to estimate – much more complicated than wind risk or fire risk – because the risk is constantly changing with development, erosion, deforestation, siltation, performance of levees, dams, drainage systems, and other changes within a watershed. Also, hurricanes, tropical storms, severe rain events, snowmelt, riverine flooding, and other flood events are not nearly as predictable as the modelers would have us believe. The worst flooding events result either from exceptional storm surge or catastrophic levee failures, or in the case of Katrina, both. These events flood many properties whose owners thought they had minimal risk.

The federal government is not in the business of backing flood insurance because it wants to be an insurer. I explained in a previous post why private insurance companies will not offer flood insurance. The larger public purpose of the federal flood insurance program is to reduce federal disaster assistance while facilitating disaster recovery. So, the program seeks to identify flood risk for the purposes of collecting premiums from the owners of at-risk properties and enticing state and local governments to adopt flood plain management regulation as a condition of participation. The flood program is the federal government’s way of making local communities acknowledge their flood risk and enact a minimal amount of flood plain management. Unfortunately, very few local governments are willing to regulate flood plain development beyond what they are required to do as a condition of participation in the flood program.

The federal government does not have its own insurance agents to sell flood insurance. It relies on contractors, insurance companies and their agents, mortgage lenders, Realtors, and local government officials to make sure that those who are required to buy flood insurance do so. We also expect them to advise those who are not required to buy flood insurance to consider buying it, particularly if they are not far from the mapped high flood risk area. In my opinion it is past time to declare the reliance on insurance companies and insurance agents as a major failure. Most put little effort into selling flood insurance, even though NFIP generously allows the companies to keep 30% of the premiums for commissions and administrative expenses – an amount that GAO found to be far more than their actual expenses. Even with that windfall, we cannot get the insurers to diligently comply with the mandatory purchase requirements, so there is almost no chance that they could be convinced to encourage flood policies outside the mandatory purchase areas. The unfortunate industry standard is for insurance agents, Realtors, bankers, and local officials to look at the maps and tell anyone who is not required to buy flood insurance that they do not need it. That is not true and we need to find a way to change that practice.

Lloyd Dixon and others at RAND published a good study a few years ago about the difficulties of achieving compliance with the mandatory purchase requirements of the flood program. They found that some communities had much higher percentages of market penetration and compliance than others, with high-risk communities in Gulf Coast states generally doing better than communities in other parts of the country. The most important finding of the RAND research was that generally if a significant portion of a community is required to buy flood insurance, then all or almost all of the insurance agents sell flood policies and most of the homeowners who are supposed to buy it do so, but if only a small portion of a community is required to have flood insurance then many of the local insurance agents do not bother to sell flood policies and homeowner compliance is worse. I have anecdotal confirmation of that from a former coworker who had to go to four different agents to find one who would sell her a flood insurance policy in Washington, DC, where only a small area near the waterfront is required to have flood insurance.

My take from this study and other anecdotal evidence is that we can get insurance agents to sell flood policies to people who know they need it and want to buy it, but very few agents are actively encouraging people to buy flood policies if they are not required by the government to do so. I do not think I am being too critical of the insurance companies and agents – just being realistic.

The insurance companies do not carry any of the risk of flood insurance and they do not carry any of the responsibility for paying disaster assistance for those who do not have it, so their only interests in the flood program are the commissions and administrative subsidies for selling the policies and the good business practice of providing flood policies to their homeowners insurance customers who are required to buy it.

The commissions and subsidies totaling 30 percent of the premiums are enough incentive to sell policies inside the Special Flood Hazard Areas. A V-zone policy can have an annual premium as high as $6,410, so the insurance company’s 30% take would be $1,923 with a portion of that going to the agent as commission. An A-zone policy can have a premium as high as $2,930, with the 30% cut at $879.  At those prices it is worth the agents’ time and effort to sell flood insurance. Those are the actuarially-priced rates for $250,000 for structure and $100,000 for contents – the maximum residential coverage available. (See NFIP pricing here.) The prices also help explain why the property insurance companies and associations are constantly lobbying to eliminate the premium subsidies for the older properties that were built before the flood maps went into effect. The reduced premiums cut into the insurers’ windfall from selling flood policies in the higher risk areas.

Outside the Special Flood Hazard Areas, the premiums are very cheap, so insurance agents do not get much commission for selling the policies. The rate for $250,000 structure/$100,000 contents coverage for a home without a basement is only $365. That is the rate for a Preferred Risk Policy (PRP) outside the mapped 100-year flood zones whether the home is just outside a zone or miles away from a flood zone.

At that price, and even less for smaller policy limits, there should be much better market penetration in places where people should know that they have some risk of flooding even if they are not required by the federal government to buy flood insurance. I have two specific categories in mind - areas that could be inundated by the storm surge from a direct hit by a major hurricane, and areas that could be inundated by the failure of a levee or dam or other flood control structure.

As I mentioned in a previous post, the flood maps do not anticipate storm surge from a major hurricane. Every year there is somewhere around a 10 percent chance that a major hurricane will hit somewhere along the more than 1,000 miles of coastline on the Gulf of Mexico, but at any specific location on the Gulf Coast the chances of major hurricane landfall are less than one percent. So, the one percent flood risk on the coastal flood maps generally reflects the expected flooding from a minor hurricane or tropical storm or just a heavy rainfall event. The maps do not change until after a major storm surge event, so the Mississippi Gulf Coast maps before Katrina showed 100-year flood elevations of 12 and 13 feet, but the new maps after Katrina show 100-year flood elevations over 20 feet. But in Alabama, Florida, Louisiana, and Texas there are still plenty of coastal maps showing 12-foot base flood elevations where houses built on slabs 14 feet above sea level and only two or three blocks from the beach would not be required to buy flood insurance.

Along rivers and other watersheds where levees and floodwalls protect buildings in the flood plains, the flood program does not mandate the purchase of flood insurance if the flood protection is projected to exceed the 100-year flood event. But because they are not in SFHAs, the policies are cheap so homeowners should be buying them. Levees fail, and when they do, we discover again and again that very few people behind the levees had flood insurance. New Orleans was an exception, in that it did have a large number of flood policies, but it still also had a lot of uncovered properties that were flooded. The main reason that there were so many flood policies in effect in New Orleans is because there is flood risk even without a levee failure because the levees can hold water in from a heavy rainfall event. New Orleans has had major flooding from ponding when storms dumped rain into the city faster than the water could be pumped out.

There is some support in Congress for requiring flood insurance for properties behind a levee, but it a contentious issue with strong opposition from communities that insist that they have spent a considerable amount to make sure that their levees and flood walls will not fail. With or without a flood insurance mandate, levees and similar flood control structures present difficult problems for NFIP. FEMA and NFIP have no jurisdiction or oversight over levee standards, certifications, or maintenance requirements, and do not have the personnel, the budget, or the expertise to inspect and grade the fitness of levee systems.  The current NFIP system assumes that if a levee is higher than the 100-year flood elevation, it will hold back the 100-year flood. This means that flood insurance is not required behind the levees, and also means that there are no restrictions on further development in those areas. The Army Corps of Engineers does examine some of the thousands of levees in the country and has found many deficiencies, particularly in the maintenance of the levees.

Okay, so now we finally get to my proposal for group policies placed by local governments. A few years ago, Andre McDonald and other members of the board of Fort Bend County Levee District 2 in Texas came to our office to discuss the issue of mandating flood insurance for properties protected by levees.  The levee board was opposed to such a mandate, but McDonald suggested that if Congress did pass a mandate, it should create an option for the levee boards to buy group policies for the homes behind the levees. This would ensure 100% coverage behind the levee, something the current system will never do, and allow the levee board to bill homeowners through ad valorem taxes, which would make the premiums tax deductible for the homeowners.

I was intrigued by the idea, and thought it was worth pursuing even if Congress did not mandate coverage behind levees. I shared the idea with my contacts on and off Capitol Hill. The Association of State Flood Plain Managers showed the most interest, and they helped pitch the concept to the staff of the Water Resources Subcommittee of the House Transportation & Infrastructure Committee when the subcommittee was looking into various levee issues. There was no interest in the idea from the House Financial Services Committee, the Senate Banking Committee, or insurance industry groups. That was not surprising. The House Financial Services Committee and the Senate Banking Committee treat the flood program as a partnership between the federal government and the property insurance industry, and show very little interest in flood mapping or flood mitigation issues or anything else that is separate from the insurance industry’s agenda. (ASFPM still mentioned the group policy recommendation in its testimony last year.)

In the House, NFIP is under jurisdiction of the Financial Services Committee where it is an afterthought to banking and financial industry matters; FEMA disaster programs are under jurisdiction of the Transportation and Infrastructure Committee where they are an afterthought to highway, rail, and air transportation; and some parts of FEMA, but no one knows exactly what, are under jurisdiction of the Homeland Security Committee. That division of authority is one reason these programs are so difficult to reform. If we are ever going to make NFIP work for federal taxpayers, we first have to disabuse Congress of the notion that it is the insurance industry’s program. NFIP is first and foremost a partnership with local governments designed to prepare for future flooding events and to mitigate and manage flood risks in order to reduce future flood losses. The insurance companies are useful to serve as contractors if they can sell and service policies without putting their own interests ahead of those of NFIP and federal taxpayers. Where they have shown no interest in selling flood policies outside the mandatory purchase areas, it is best that we devise a mechanism to bypass them and deal directly with the local governments that do have an interest in ensuring that more of their residents are prepared for their flood risk.

I want to resurrect the idea of group policies, not just for levee districts but for all local governments that have areas at risk of storm surge or levee or dam failure.  The group policy program would give a local government the option of covering a defined category of properties for some minimum amount of coverage. For example, almost every coastal community has a storm surge risk map for identifying hurricane evacuation priorities. Comparing the flood insurance risk map to the evacuation map generally shows that flood insurance may be required in the Category 1 hurricane storm surge risk area but not in the Category 2, 3, and 4 storm surge areas. Under my proposal, the local government could offer a group flood insurance policy for properties with some storm surge risk that are not in the mandatory purchase areas. Of course, the other obvious areas where the group policy option could be used are the places protected by levees, as originally suggested by Andre McDonald and advocated by the Association of State Flood Plain Managers.

The local government could offer a standard coverage amount – say $50,000 for structure and $20,000 for contents (currently available outside the SFHAs for $211 premium), or $100,000 for structure & $40,000 for contents ($274). Anyone who wants more coverage than the small group policy could opt out of the group policy and purchase a policy from an insurance agent. Whether the local government should require every property in the designated area to purchase flood insurance is open for debate. I would say no, but would require a homeowner who opts out to sign a document opting out of flood insurance and forfeiting any future disaster assistance for flood damage.

There would have to be incentives to get local governments to do this. I would let them keep the 30% of the premiums that the insurance companies get to keep, and use that money to administer the program and fund flood mitigation projects. I would expect that most local governments would contract with a local insurance agency or broker to handle the transactions and keep track of the policies. Those administrative contracts should cost considerably less than the 30% share retained by the local government. The remainder of the local share could be used for projects and programs that manage the flood risk, including as the local cost-share of flood mapping modernization, levee maintenance and improvements, drainage improvements, hazard mitigation projects, including buying out or elevating flood-prone properties, etc.  The local government’s 30% share from the group premiums should be transparent and accountable.  I would consider giving additional incentives for certain projects, especially buying out repetitively flooded properties, something local governments are reluctant to do because it removes properties from their tax rolls.

FEMA already places group flood policies after a flooding disaster. Those properties that receive FEMA assistance or SBA disaster loans for flood damage are placed in a small group policy as a condition of the assistance. The group policies are administered by the NFIP Direct Agent under contract, not by the regular insurance agents in the Write Your Own program. Because these are small policies, NFIP Direct receives a flat-fee per policy instead of a percentage of the premium. The group policy lasts for only three years. FEMA sends the homeowners several notifications telling them that they should buy a flood policy from an insurance agent, and that if they do not, they cannot receive FEMA assistance if they flood again. Despite the notice and warning, many of the homeowners do not sign up for a regular NFIP policy when the group policy ends.

I do not recommend that my new group policy proposal be given to the NFIP Direct Agent. I am not just looking for a way to sell more flood policies, but am also looking for a way to get local governments more invested in the management of flood risk, and especially for a way to get local governments to start telling people that just because the federal government does not mandate the purchase of flood insurance that does not mean they do not need it.

 

2 GAO reports on NFIP and insurance companies after Katrina

I have made reference in previous posts to GAO reports on the National Flood Insurance Program, so it is past time for me to discuss the GAO findings and recommendations. In the four years after Hurricane Katrina, there were at least six significant GAO reports on NFIP that focused on problems in the management and oversight of insurance companies and contractors. I am going to focus on two of those reports:

National Flood Insurance Program: Greater Transparency and Oversight of Wind and Flood Damage Determinations Are Needed, GAO-08-28, December 28, 2007

Flood Insurance: Opportunities Exist to Improve Oversight of the WYO Program, GAO-09-455, August 21, 2009

Below I have copied and pasted the summary findings and recommendations from the reports themselves.

The December 2007 GAO report is the one that said insurance companies have an inherent conflict of interest when NFIP allows them to adjust both the federal flood claim and their own wind claim on a property that has both wind and flood damage from a hurricane. It also said that NFIP and its contractors performed very little oversight of those adjustments, did not require the insurance companies to explain how they distinguished between flood damage and wind damage, and did not even have access to information on the companies’ wind claims, so they did not even have the capacity to verify that the claims had been fairly apportioned between the flood and homeowners policies. It should be noted that with regard to NFIP the insurance companies are nothing more than contractors and have a fiduciary responsibility on behalf of the federal government and federal taxpayers. They do not bear any of the flood risk, so they are not acting as insurers.

The handful of us who actually read this report when it was released saw this as a strong indictment of the mismanagement of the flood program and an urgent call for reform of the relationship between the insurance company contractors and NFIP. Unfortunately, only a handful of us actually read GAO reports. As soon as the report was released, the insurance companies, FEMA, NFIP, and their allies in Congress and the Bush Administration all repeated the talking point that the GAO had concluded that there was no proof that the insurance companies had committed fraud by billing the flood program for wind damage. The national press, which also apparently never reads GAO reports, repeated this spin and declared the issue settled. (The only media exceptions were Becky Mowbray of the Times Picayune and Anita Lee of the Sun Herald, but their readers in New Orleans and on the Mississippi Gulf Coast already knew what insurance companies had done to them.) Of course, what GAO had found was that there was so little documentation contained in the flood claims files that it was not possible to determine at that point whether the adjustments had been fair or accurate.

The 2009 GAO report about the windfall subsidies paid by NFIP to the insurance companies was completely ignored by Congress, the Obama Administration, and the media. I am not sure whether anyone but me took the time to read it. Generally, when an insurance company’s agent sells a flood policy, the company keeps 30% of the premium to pay the agent’s commission and the company’s administrative expenses for handling the policy. GAO found that to be almost certainly an excessively generous administrative subsidy, but could not tell for sure because NFIP does not require insurance companies to report what they actually spend to administer flood policies. The 30% is based on an insurance industry formula for what insurers spend on their own policies, with another free percentage point gifted by the Bush Administration in 2001. As GAO explains, insurance companies have a lot of underwriting and marketing expenses on their own products that they do not have with NFIP policies. The overwhelming record shows that insurance companies and their agents do not independently promote flood policies – they write flood policies when the mortgage requires it or when the customer requests it but do not spend any more time or resources than absolutely necessary. For several years, the Congressional Budget Office’s annual Budget Options book has included the option of rescinding the extra one percent of premiums that was gifted to the insurance companies by NFIP in 2001. In 2010, I drafted an amendment that my boss Gene Taylor offered to that year’s House flood insurance bill to rescind the extra percent to drop the administrative subsidy from 30% to 29%, but the House Rules Committee would not make the amendment in order, so Taylor was not allowed to offer it on the floor. The Rules Committee acts on behalf of the party leaders, so it was clear that neither party leadership wanted its Members to have to vote on a cut in the subsidy to insurance companies.

GAO also found that the NFIP practice of paying bonuses to insurance companies for increasing the number of flood policies was commonly rewarding companies for something they had nothing to do with. After a major flood event there is an increase in flood policies because any uninsured disaster victim who receives FEMA assistance or an SBA disaster loan for flood damage is required to buy flood insurance as a condition of the assistance. In other cases, updates in the flood insurance maps often add more properties into the mandatory zones where flood insurance is required for a federally-backed mortgage. The great majority of new flood policies are because of these two factors, yet NFIP has been rewarding insurance companies that already keep 30% of the premiums with an additional bonus.

First, here are the findings and recommendations in the GAO report on Wind/Flood Conflicts:

National Flood Insurance Program: Greater Transparency and Oversight of Wind and Flood Damage Determinations Are Needed, GAO-08-28, December 28, 2007

What GAO Found

Insurance coverage gaps and claims uncertainties can arise when coverage for hurricane damage is divided among multiple insurance policies. Coverage for hurricanes generally requires more than one policy because private homeowners policies generally exclude flood damage. But the extent of coverage under each policy depends on the cause of the damages, as determined through the claims adjustment process and the policy terms that cover a particular type of damage. This process is further complicated when the damaged property is subjected to a combination of high winds and flooding and evidence at the damage scene is limited. Other claims concerns can arise on such properties when the same insurer serves as both NFIP’s write-your-own (WYO) insurer and the property-casualty (wind) insurer. In such cases, the same company is responsible for determining damages and losses to itself and to NFIP, creating an inherent conflict of interest.

 Differences in licensing and training requirements for insurance claims adjusters among states also create uncertainties about adjusters’ qualifications. Prior to the 2005 hurricane season, some coastal states had few or no requirements, while others had requirements for most types of adjusters. Further, states can waive their normal oversight requirements after a catastrophic event to help address demand, as they did after Hurricane Katrina. As a result, significant variations can exist in the qualifications of claims adjusters available after a catastrophic event. Strengthened and more uniform state requirements for adjusters could enhance the qualifications of the adjuster force in future catastrophes and improve the quality and consistency of claims adjustments.

 NFIP does not systematically collect and analyze both wind and flood damage claims data, limiting FEMA’s ability to assess the accuracy of flood payments on hurricane-damaged properties. The claims data collected by NFIP through the WYO insurers—including those that sell and service both wind and flood policies on a property—do not include information on whether wind contributed to total damages or the extent of wind damage as determined by the WYO insurer. The lack of this data also limits the usefulness of FEMA’s quality assurance reinspection program to reevaluate the accuracy of payments. In addition, the aggregate claims data that state insurance regulators collectively gathered after Hurricanes Katrina and Rita were not intended to be used to assess wind and flood damage claims together on a property- or community-level basis.

 Further, FEMA program contractors do not have access to WYO insurers’ policies, procedures, and instructions that describe to adjusters how wind and flood damages are to be determined when properties are subjected to both perils. FEMA
officials stated that they did not have the authority to collect wind damage claims data from insurers. But without the ability to examine claims adjustment information for both the wind and flood damages, NFIP cannot always determine the extent to which each peril contributed to total property damages and the accuracy of the claims paid for losses caused by flooding.

GAO Recommendations:

Matters for Congressional Consideration:

To strengthen and clarify FEMA’s oversight of WYO insurers, particularly those that service both wind and flood damage claims on the same property, we recommend the Congress consider giving FEMA clear statutory access to:

• both wind and flood damage claims information available from NFIP’s WYO insurers in cases in which it is likely that both wind and flooding contributed to any damage or loss to covered properties, enabling NFIP to match and analyze the wind and flood damage apportionments made on hurricane-damaged properties in a systematic fashion, as appropriate; and

• the policies, procedures, and instructions used by WYO insurers and their adjusters for both flood and wind claims to assess and validate insurers’ claims adjustment practices for identifying, apportioning, and quantifying damages in cases where there are combined perils.

Recommendation for Action

We recommend that state insurance commissioners, acting through NAIC, enhance the quality and consistency of standards and oversight for all types of claims adjusters among states through more stringent and consistent licensing and training requirements for adjusters, including, in those states where appropriate, training to assess and apportion damages due to wind, flooding, or both.

Now, here are the GAO findings and recommendations about the generous NFIP administrative subsidies to insurance companies:

Flood Insurance: Opportunities Exist to Improve Oversight of the WYO Program, GAO-09-455, August 21, 2009

What GAO Found

 FEMA does not systematically consider actual flood insurance expense information when it determines the amount it pays the WYO for selling and servicing flood insurance policies and adjusting claims. Rather, since the inception of the WYO program, FEMA has used various proxies for determining the rates at which it pays the WYOs. Consequently, FEMA does not have the information it needs to determine (1) whether its payments are reasonable and (2) the amount of profit to the WYOs that are included in its payments. When GAO compared expense payments FEMA made to six WYOs to the WYOs’ actual expenses for calendar years 2005 through 2007, we found that the payments exceeded actual expenses by $327.1 million, or 16.5 percent of total payments made. Considering actual expense information would provide transparency and accountability over payments to the WYOs.

 FEMA has not aligned its bonus structure with its long-term goals for the program. The WYOs generally offered flood insurance when requested but did not strategically market the product as a primary insurance line. FEMA has not set explicit marketing goals beyond a 5 percent goal of increasing policy growth each year, and the WYO program primarily rewards companies that are new to NFIP for sales increases that may result from external factors, including flood events. The Government Performance and Results Act states that when results could be influenced by external factors, agencies can use intermediate goals to measure contributions to specific goals. Paying bonuses based on such intermediate targeted goals could bring the bonus structure more in line with FEMA’s goals for the NFIP program.

FEMA has explicit financial control requirements and procedures for the WYO program but has not implemented all aspects of its Control Plan. FEMA provides guidance for WYOs that is intended to ensure compliance with the statutory requirements for the NFIP and contains checks and balances to help ensure that taxpayer funds are spent appropriately. FEMA did most of the required biennial audits and underwriting and claims reviews but did not do most of the required audits for cause; state insurance department audits; and marketing, litigation, and customer service operational reviews. In addition, FEMA did not systematically track the outcomes of the various audits, inspections, and reviews that it performed for the 10 WYOs included in this review of FEMA’s oversight of the program. Because FEMA does not implement all aspects of the Control Plan, it cannot ensure that the WYOs are fully complying with program requirements.

Recommendations for Executive Action

 To provide transparency and accountability over the payments FEMA makes to WYOs for expenses and profits, we recommend that the Secretary of Homeland Security direct the Under Secretary of Homeland Security, FEMA, to

 • determine in advance the amounts built into the payment rates for estimated expenses and profit;

 • annually analyze the amounts of actual expenses and profit in relation to the estimated amounts used in setting payment rates;

 • consider the results of the analysis of payments, actual expenses, and profit in evaluating the methods for paying WYOs; and

 • in light of the findings in this report, immediately reassess the practice of paying WYOs an additional 1 percent of written premiums for operating expenses.

To increase the usefulness of the data reported by WYOs to NAIC and to institutionalize FEMA’s use of such data, we recommend that the Secretary of Homeland Security direct the Under Secretary of Homeland Security, FEMA, to

• take actions to obtain reasonable assurance that NAIC flood insurance expense data can be considered in setting payment rates that are appropriate, including identifying affiliated company profits in reported flood insurance expenses, and

• develop comprehensive data analysis strategies to annually test the quality of flood insurance data that WYOs report to NAIC.

If FEMA continues to use the WYO bonus program, we recommend that the Secretary of Homeland Security direct the Under Secretary of Homeland Security, FEMA, to improve it by considering the use of more targeted marketing goals that are in line with FEMA’s NFIP goals.

To improve oversight of the WYO program and compliance with program requirements, we recommend that the Secretary of Homeland Security direct the Under Secretary of Homeland Security, FEMA, to

• consistently follow the Control Plan and ensure that each component is implemented;

• ensure that any revised Control Plan include oversight of all functions of participating WYOs, including customer service and litigation expenses; and

• systematically track insurance companies’ compliance with and performance under each component of the Control Plan and ensure centralized access to all the audits, reviews, and data analyses performed for each participating insurance company under the Control Plan.

Taylor testimony on FEMA five years after Katrina

As I said in a previous post, I am posting a few documents on Hurricane Katrina recovery matters that I helped to produce on the staff of Rep. Gene Taylor. The Taylor website is no longer online, so I hope to preserve some of the history and offer reminders of some of the policy issues that have not been fully addressed.

The first document was Rep. Taylor’s written testimony for a 2010 hearing on reform of the National Flood Insurance Program. This document is Taylor’s written statement for a 2010 subcommittee hearing on FEMA public assistance programs five years after Katrina.

REP. GENE TAYLOR, 4TH DISTRICT OF MISSISSIPPI

STATEMENT FOR THE RECORD

Hearing On “Five Years After Katrina: Where Are We And What Have We Learned For Future Disasters”

Subcommittee on Economic Development, Public Buildings, and Emergency Management

of the Committee on Transportation and Infrastructure

September 22, 2010

 Thank you, Chairwoman Norton, for holding another hearing on Hurricane Katrina. I appreciate your help in the past to get FEMA to address some of our concerns in Mississippi. It is unfortunate that your bill that the House passed in 2007 did not become law because I believe that it would have sped up the recovery of cities and school districts on the Gulf Coast.

Five years after Hurricane Katrina, we still have several obstacles to the recovery on the Mississippi Gulf Coast. The focus of this hearing is on FEMA’s Public Assistance program, but before getting into that, I would like to briefly go over a few other items.

Shortly after Katrina, Congress funded Special Community Disaster Loans (SCDL) to help the devastated local governments cover their payroll and operating expenses. At the time, the Republican House Leadership insisted on language that the SCDL loans could not be cancelled, even though the statute normally provides that they can be cancelled if a local entity has not recovered three years later.

When the Democrats gained the majority in 2007, Majority Whip Jim Clyburn introduced a bill that I cosponsored that would reinstate the three-year cancellation rule and also waive the local matching funds for public assistance projects. The Bush Administration has reduced the local match from 25 percent to 10 percent, but the communities in Mississippi and Louisiana that had been wiped out were not going to be able to pay 10 percent of every project and probably were not going to be able to repay the Community Disaster Loans.

The House included both of these provisions in our version of the 2007 Supplemental Appropriations Act and Jim Clyburn convinced the Bush Administration to accept them in the final bill. The elimination of the matching funds on Public Assistance projects has saved local governments hundreds of millions of dollars.

It took FEMA until January 2010 to publish the final rule for the cancellation of the Special Community Disaster Loans. In August FEMA made its initial determinations. FEMA has bungled yet another simple assignment.

The intent of the statute is very clear. If after three years, a local entity has not recovered to the point that its revenues are sufficient to cover its normal operating costs, then it is eligible for full or partial cancellation of the loans. Somehow FEMA has interpreted and implemented this statute in a way that denied cancellation or provided only partial cancellation to school districts, cities, and counties that are still dependent on FEMA and other federal assistance to pay some of their operating costs. I would think that by definition, if a local entity needs the federal government to pay some of its costs, then it has not recovered.

In the case of school districts, it appears that FEMA made the ridiculous decision to count the Restart grants from the Department of Education as revenues. The Immediate Aid to Restart School Operations was one-time supplemental assistance to help with the costs of reopening the schools that had been forced to close. Those funds are not part of the regular revenue base of the local schools and should not be counted for the purpose of determining whether the school district has recovered and can repay the SCDL. Someone with a little common sense needs to fix this. It should not take an act of Congress.

In the case of cities, it appears that some cities have been punished because their box stores were able to open before the stores in other cities, so they had a one-time surge in sales taxes due to reconstruction activity. I urge FEMA to examine these cases and apply the intent of the statute and determine whether the local entity is self-sufficient.

Cities and school districts on the Mississippi Gulf Coast have not fully recovered because we have thousands of vacant lots that should have single-family homes on them. Those single-family homes and many locally-owned small businesses will not return until Congress enacts insurance reform. There is no competitive market for insurance on the Mississippi Gulf Coast or in other coastal areas. The cost of windstorm coverage on the coast is several times higher than what the insurers expect to pay in claims, yet the insurance companies are not writing new policies. In some cases, the monthly insurance premiums are as high as the mortgage payment. These high insurance costs are the biggest remaining obstacle to Mississippi’s recovery from Katrina.

I have addressed this issue at length in hearing testimony, letters, statements, and in debate on the House floor.   My legislation, the Multiple Peril Insurance Act, would create the option for property owners to buy both wind and flood insurance from the National Flood Insurance Program. The wind coverage would be at actuarial rates so that the program paid for itself. This program would allow homeowners to buy insurance and know that hurricane damage would be covered. The federal coverage also would be more efficient than state-by-state wind pools. A state wind pool concentrates the policies in one place where the entire pool could be affected by a single storm. In a federal insurance plan, only a small portion of the pool would be affected by a single storm.

My legislation passed the House in 2007 but failed in the Senate. The Obama Administration came out against it before showing any interest or understanding of the coastal insurance market in general or of the Katrina claims practices that allowed insurance companies to bill some of their wind losses to the federal flood program. I am still waiting for the opponents of my bill to propose a reasonable alternative that would address the wind-water dispute and would provide for reasonably-priced wind insurance. We are not asking for any subsidy. Coastal homeowners need choice, transparency, and protection from the anticompetitive practices of the insurance and reinsurance industries.

I want to make one last point before I address the problems with FEMA’s Public Assistance program. Most of my colleagues in Congress and most of the country probably are not aware of the mitigation actions that Mississippi and Mississippians have taken to reduce future hurricane and flood damage. We have implemented new flood insurance maps that raised the elevation requirements for new construction by as much as 8 to 10 feet. Our elevation requirements now are higher than any other coastal state.

Thousands of homes and businesses have been built to the new elevations using NFIP Increased Cost of Compliance coverage, FEMA mitigation grants, or the property owners’ own funds. Hundreds of flood-prone properties have been bought out using FEMA mitigation grants or Corps of Engineers coastal restoration funds.

Many more low-lying properties could have been bought out if the FEMA mitigation program was better designed. The federal government is not allowed to go in unilaterally and buy a flood-prone property, even from a willing seller. The current rules require that the projects be initiated by the local government, negotiated by the local government, and have cost-share requirement for the state and local government. After a major disaster, local governments do not have the money to pay matching funds and do not have the resources to devote to the property negotiations, cost-benefit analyses, and other requirements to implement a buy-out. FEMA needs to have authority to go in after a major disaster and use 100% federal funds to buy out a narrow category of repetitive loss properties.

Four years ago, Rep. Charlie Melancon and I announced the recommendations of the Katrina Task Force of the Democratic Caucus. We had been appointed by Minority Leader Nancy Pelosi and Caucus Chairman Jim Clyburn to confer with our colleagues and our constituents and then propose policies to improve the recovery in our states.

At the time, our first and loudest point was that Hurricane Katrina was too big for FEMA and the Stafford Act. The rules in place might work in places that had reparable damage and needed temporary assistance, but in the cities and counties and parishes of Mississippi and Louisiana that were devastated, we needed much more flexibility, more resources, more technical assistance, and more expertise than FEMA was willing or able to offer.

FEMA insisted on making every public building, every street, every water line, and every sewer line a separate project to be haggled over for years. The result has been thousands of examples of “penny-wise, but pound-foolish” actions where FEMA delayed the reconstruction of essential facilities and infrastructure for years, disputing a few hundred thousand dollars on individual projects, while costing taxpayers billions of dollars in disaster assistance by delaying the overall recovery. The water and sewer systems, the schools, and other public facilities needed to be the first things rebuilt so that local residents and business owners could return and rebuild.

Our Katrina Task Force Report also urged Congress and the Bush Administration to fully engage other federal agencies in the recovery. We have a federal Department of Housing and Urban Development yet they did not join the housing recovery or the urban development recovery until Senator Thad Cochran inserted an earmark that forced HUD to allocate billions of dollars of Community Development Block Grants. Even then, HUD never offered the technical assistance or planning guidance that could have accelerated the housing recovery and could have freed local communities from the quagmire of FEMA’s slow-motion building-by-building procedures.

Similarly, we needed the Department of Education to help develop and approve plans for recovery of the schools and we needed the Department of Health and Human Services to take some interest in restoring health care services. Those agencies did allocate grants that were earmarked into Supplemental Appropriations bills by Congress, but they never showed up to offer the expertise that was badly needed.

As a result, the public schools and other public facilities were forced to slog through thousands of FEMA project worksheets, in many cases wasting two or three years haggling over whether a damaged building could be repaired or should be rebuilt, and then whether it should be built exactly as it was or instead could be build better and perhaps at a different site. FEMA’s default position is that it will only reimburse to replace exactly what was there before, but after Katrina it would have been stupid to spend billions of dollars restoring inadequate and obsolete facilities, and constructing replicas of buildings that did not comply with current codes, accessibility standards, energy efficiency practices, or security requirements.

I made these same points when I testified in a hearing held by this subcommittee in May of 2007. Later that year, the House passed a bill that included some of my recommendations. The House bill would have forced FEMA to accept alternate projects so that schools could have been built to the highest standards. Unfortunately, the Senate was not able to pass a comparable bill, so our legislation did not become law.

If anyone wants to understand how FEMA’s compliance-zealot culture works against its primary mission to facilitate recovery, I encourage an examination of FEMA’s interactions with the Bay St. Louis-Waveland School District over the past five years.

The cities of Bay St. Louis and Waveland were devastated by Katrina. Every school in the Bay-Waveland district was either destroyed or substantially damaged, and the property tax base was wiped out. Bay-Waveland School District is a prime example of why we need the federal government to help rebuild public facilities and restore public services after a catastrophe. Restoring devastated school districts should be one of FEMA’s most important missions. Yet, over and over and over again, the school district has had to fight with FEMA over debris removal rules, damage estimates, reconstruction costs, building standards and code requirements, and every other action or proposal.

The Bay-Waveland School District has had a severe shortfall in local revenues for the past five years. The central office is still located in trailers. The district has had to cut staff, delay technology purchases, and raise student fees. The districts utility and insurance costs have increased by 60 percent since Katrina. Yet, FEMA ruled that the district did not qualify for cancellation of its $7 million Special Community Disaster Loan because it receives supplemental Restart funds from the Department of Education.

With that history, it should not be surprising that one of the first arbitration cases involved the Bay-Waveland School District. Congress and the Obama Administration established a FEMA arbitration process to resolve remaining Katrina and Rita public assistance disputes in the American Recovery and Reinvestment Act of 2009. The Bay-Waveland School District requested replacement costs of $7 million for damages at three schools. FEMA claimed that the damages could be repaired for $176,000. The U.S. Civilian Board of Contract Appeals awarded the full $7 million to the school district.

The arbitration procedure appears to be working well. So far the cases have reinforced my opinion and the opinions of our local officials that FEMA was not being reasonable all these years.

Taylor testimony on Flood Insurance Reform

I am going to post some documents about the Hurricane Katrina recovery that I helped to produce while on the staff of Rep. Gene Taylor. The Taylor website is no longer online, so I want to preserve some of the history and try to remind people of some of the problems with the design, management, and oversight of federal programs that still have not been adequately addressed. I also hope a few people will read these documents, since I doubt that more than a couple of Members of Congress or their staffers actually read them at the time.

First, here is the written statement submitted by Congressman Taylor to a hearing of the Financial Services Subcommittee on Housing regarding our legislation to allow property owners the option to purchase insurance that would cover hurricane damage without being forced to prove what damage was caused by wind and what damage was caused by flooding:

TESTIMONY OF

THE HONORABLE GENE TAYLOR

MEMBER OF CONGRESS,

4TH DISTRICT OF MISSISSIPPI

BEFORE

 THE UNITED STATES HOUSE OF REPRESENTATIVES

COMMITTEE ON FINANCIAL SERVICES

SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY

 

 “LEGISLATIVE PROPOSALS TO REFORM THE NATIONAL FLOOD INSURANCE PROGRAM”

 APRIL 21, 2010

 Thank you, Madam Chairman, for holding this hearing and for all of your assistance to me and the people of Mississippi and Louisiana since Hurricane Katrina. I know that you personally have been to the Gulf Coast at least three times to hold field hearings and to meet with local citizens, and I sincerely appreciate your efforts and support for our recovery.

As you know, the House passed a very good flood insurance reform bill in 2007 that included my legislation to create an option for coastal property owners to buy wind and flood insurance from the National Flood Insurance Program. The Housing Subcommittee under Chairman Waters and the Oversight and Investigations Subcommittee then under Mr. Watt held six hearings about the handling of Katrina insurance claims and about the need for a much better insurance option to cover hurricane losses.

Unfortunately, we were not able to convince the Senate or the Bush Administration to take the issue seriously, so the House reform package died at the end of the 110th Congress. We are back three years later. The fundamental problems in the flood program still have not been addressed and the coastal insurance crisis has spread to more states.

There are three simple reasons why coastal residents, federal taxpayers, and state governments need Congress to enact H.R. 1264, the Multiple Peril Insurance Act.

First, home owners and business owners in coastal communities need to be able to buy hurricane insurance that will cover hurricane damage without needing to hire lawyers and engineers to engage in prolonged disputes over what portion of the damage was caused by flooding and what portion was caused by wind. As long as wind and flood coverage are in separate policies, there will be gaps in coverage and disputes over causation after hurricanes.

Second, federal taxpayers need coastal home owners and business owners to pay premiums for hurricane insurance that will promptly and efficiently cover hurricane losses so that the taxpayers do not have to pay billions of dollars in rental assistance, FEMA trailers, home repair grants, subsidized loans, and tax deductions after a hurricane. Every property loss that is uninsured or for which payment is delayed or denied, ends up being subsidized in some way by federal disaster assistance.

Third, the Gulf and Atlantic states need the federal government to set up a hurricane insurance pool that will spread hurricane insurance exposure over a large geographical area to replace the state-by-state pools that concentrate the exposure in local areas. In just the past four years, insurance companies have dumped more than $300 billion in coastal insurance exposure into state-sponsored high-risk pools. These single-state pools cannot build up sufficient reserves for a major hurricane that would hit a large portion of the pool at one time.

Under the current insurance system, the National Flood Insurance Program relies on insurance companies to sell federal flood insurance policies. That is a good idea because then we do not need to hire federal insurance agents.  However, GAO has found that NFIP overpays insurance companies by hundreds of millions of dollars in administrative subsidies. Congress should enact all ten GAO recommendations to reduce the administrative payments and to improve the oversight and accountability of the operating subsidies paid to the Write Your Own companies.[1]

Unfortunately, that is the least of NFIP’s problems caused by its failure to provide adequate oversight of the insurance companies. The flood program also allows the insurance companies to adjust flood claims after a hurricane and determine how much damage to blame on flooding and bill to the federal taxpayers and how much damage to blame on wind that is covered by the insurers’ own policies. GAO correctly described this arrangement as an “inherent conflict of interest.”[2]

GAO also found that FEMA did not require the insurance companies to explain their procedures for identifying, apportioning, or quantifying the damages caused by flood or wind on properties that experienced both perils. GAO recommended that Congress give FEMA clear statutory access to the wind claims files for properties with both wind and flood damage, and require the insurance companies to document their procedures for adjusting cases where both perils contributed to the damage.[3]

I urge Congress and the Administration to enact the GAO recommendations but I do not believe that they go far enough. The “inherent conflict of interest” that insurance companies have under the current system cannot be managed or mitigated.

In fact, the GAO report barely scratched the surface of the many ways that insurance companies shifted their liabilities to the federal taxpayers. Several of the largest insurers in the country implemented an extreme interpretation of their “Anti-Concurrent Causation” clauses, attempting to deny any coverage of wind damage if flooding also contributed to the damage later.

Two weeks after Katrina, State Farm sent a memo to its adjusters with the instruction that “Where wind acts concurrently with flooding to cause damage to the insured property, coverage for the loss exists only under flood coverage.”[4]

State Farm’s adjusters spent the first month after the storm driving around South Mississippi handing out flood insurance checks from federal taxpayers, but made no attempt to determine the amount of wind damage or to prove the amount of flood damage. When State Farm did send engineers to estimate the cause of damage at some of those properties, the engineers were given instructions that they not divide the loss between wind and flood, and coerced and threatened them to blame it all on flooding.

These tactics and actions have been exposed in case after case after case in the past four years, but NFIP, FEMA, the Department of Homeland Security, and the Department of Justice have done nothing to step up and protect policyholders and taxpayers.

Although the interpretation of Anti-Concurrent Causation language was the central legal issue in thousands of cases, it took four years of delays, appeals, and settlements, before we finally received a definitive legal interpretation by the Mississippi Supreme Court. In Corban v. USAA, the state Supreme Court ruled that damage caused by wind before any flood damage should be covered by the wind insurance policy, not by the flood insurance policy. The Court also confirmed that the insurance company has the burden to prove that the loss is excluded or else pay the claim.

During oral arguments in the Corban case, Nationwide was permitted to appear as an interested party. Nationwide’s attorney, Christopher Landau, argued that the sequence of the wind and flood damage did not matter because of the Anti-Concurrent Causation clause.

Mississippi Supreme Court Justice Randy “Bubba” Pierce had this exchange with Landau: [5]

JUSTICE PIERCE: So you’re sequencing, if 95 percent of the home was destroyed, and then we have the event of the storm surge, then you would not pay a dime?

MR. LANDAU: Your Honor, if we prove that the storm surge was sufficient to cause – we have that burden, again, and that is absolutely crystal clear.

If we can prove that the storm surge was sufficient to cause all of this, it is no answer then to say, ‘Yeah, but I’m going to show it — I’m going to have somebody come in and say, “Look, guess what, the window was broken before the storm surge came and then wiped away the whole house.

But you don’t get into those kinds of issues precisely because of the sequencing of the damage.

JUSTICE PIERCE: So you wouldn’t pay a dime?

MR. LANDAU: If – again, we wouldn’t pay a dime for things where we can carry our burden, which is right there in the policy, of showing that the loss was caused concurrently –

JUSTICE PIERCE: I’m giving you — the example is 95 percent of the home is destroyed, the flood comes in and gets the other five percent, and you know that.

Does your interpretation of the word “sequence” mean you pay zero?

MR. LANDAU: Yes, your Honor.

It took four years to officially reject that ridiculous argument and get a common sense interpretation of the most important point of law because the insurance companies were able to move the thousands of cases to federal court and then bog down those courts with motions about anything and everything except the facts and the law central to the cases. Whenever it appeared that a case might come to trial and provide a useful precedent for other cases, the defendant insurance company would settle it confidentially.

While I have great respect and admiration for Judge L.T. Senter, Jr., who has spent the past four and half years dealing with many of these cases in South Mississippi, the fact is that the federal court system failed after Katrina. The insurance companies have been allowed to carry out an obvious legal strategy whose goal was to delay disaster victims their day in court in order to wear them down so they would accept settlement offers.

Many of the people who were denied coverage eventually reached settlements with their insurance companies, but the years of denials and delays were very costly to the federal taxpayers. Congress and the federal government did not sit idly by while hundreds of thousands of citizens were left homeless by Hurricane Katrina.

While many people have commented about the fact that the National Flood Insurance Program paid more than $16 billion in claims from Hurricane Katrina, almost no one has noted the fact that the federal government spent more than twice that much, 34.5 billion dollars, providing rental assistance, FEMA trailers, grants, and loans for home repairs.

Federal Disaster Housing Assistance to Residents Displaced by Katrina

FEMA Housing Assistance Payments[6]

$4,287,388,698
FEMA Manufactured Housing Costs[7]

$7,172,714,484
HUD CDBG Housing Grants[8]

$15,437,876,000
SBA Disaster Home Loans[9]

$7,610,787,000
TOTAL HOUSING ASSISTANCE

$34,508,766,182

A significant part of those costs should have been paid by insurance or could have been avoided if residents had insurance policies that would have covered their hurricane losses without disputes or gaps in coverage.

Homeowners insurance policies generally have coverage for “loss of use” or “additional living expenses” that will provide some amount of temporary living expenses if a policyholder is displaced because of a covered loss. When the insurance companies denied wind coverage, the denial also precluded coverage of living expenses. The flood insurance program does not provide coverage for loss of use or business interruption. Those coverages should be added to NFIP.

With many people displaced by Hurricane Katrina, FEMA immediately provided $2,000 per household. Because of the scope and severity of the property losses from Katrina, FEMA housing assistance grew into a long-term rental assistance program that ended up costing almost $4.3 billion.

In mid-September of 2005, President Bush came to New Orleans and announced that the federal government would provide a trailer to anyone who lost their home from Katrina. FEMA eventually paid more than $7 billion to provide 140,000 trailers. Many of the 42,000 trailers in Mississippi provided temporary housing for residents whose insurance claims had been denied and were waiting for their day in court.

In the meantime, many homeowners who had uninsured or insured-but-unpaid losses, took out low-interest disaster loans from SBA to repair or rebuild their homes. SBA made more than 100,000 disaster home loans for a total of $7.6 billion in Louisiana, Mississippi, and Alabama.

In the December 2005 Supplemental Appropriations Act, Senator Thad Cochran of Mississippi helped get the first appropriation for the Community Development Block Grant funds that would become the Road Home Program in Louisiana and the Homeowner Assistance Grant program in Mississippi. The concept for that program originated in the House Financial Services Committee with then-Ranking Member Barney Frank and his staff helping me draft a bill to provide assistance for the thousands of people whose homes flooded but who did not have flood insurance at least in part because they were not in a Special Flood Hazard Area according to the flood insurance maps.

Our bill would have paid disaster assistance to these homeowners through the National Flood Insurance Program in exchange for a covenant attached to the deed requiring flood insurance in perpetuity. Our proposal was opposed by the Bush Administration and Republican House leaders, but Senator Cochran was able add CDBG funds so that the states could create their own housing assistance programs.

While both states obligated residents to purchase flood insurance as a condition of the grants, I am concerned that neither the states nor the NFIP are actively enforcing the requirement.

In Mississippi, Phase I of the Homeowners Grant awards were based on the amount of uninsured loss, but capped at the amount of homeowners insurance in force at the time of Katrina. This was designed to assist homeowners who believed that they had insured their properties for a hurricane. However, this program served to take a lot of the pressure off of the insurance companies to pay on their wind claims.

The Road Home Program in Louisiana was a larger program with different criteria, but it also relieved a lot of pressure on the insurance companies by proving grants for uninsured or unpaid losses of people who did not collect in full on their insurance policies. Overall, the CDBG grant programs provided more than $15.4 billion in housing assistance grants, almost as much as the total of flood insurance claims payments.

Those four programs, rental assistance, FEMA trailers, SBA loans, and CDBG grants total more than $34.5 billion in direct assistance to homeowners and displaced renters. There also were billions of dollars of casualty loss tax deductions and other tax relief for homeowners. In additions, FEMA has provided billions of dollars of assistance to local governments and Congress has waived the local cost-shares and provided for the forgiveness of Community Disaster Loans because the property tax base still has not recovered. A large portion of those federal costs are the direct result of the gaps in insurance coverage.

The spokesmen for the insurance industry defend its performance by saying that insurers paid more than $41 billion in claims from Katrina. What they rarely admit is that the majority of the money was paid on large commercial claims, including some big business interruption claims because the oil and gas industry was shut down for a few weeks. It is great that those businesses were paid, but those claims are irrelevant to the discussion about the handling of homeowners wind and flood claims. The itemization of the insurance claims payments and federal assistance in Mississippi shows that the aggregate numbers are very misleading.

Payment Source

Number

Total   Payments

Average
NFIP Claims Paid[10]  

17,464

$2,439,649,984

$139,696
CDBG Homeowner Grants[11]

27,741

$2,158,364,059

$77,804
SBA Disaster Home Loans[12]

31,243

$2,069,160,000

$66,228
FEMA Trailers[13]

42,000

$1,596,628,569

$38,015
Homeowners Claims[14]  

355,000

$5,475,000,000

$15,423

Insurance companies paid billions of dollars in homeowners claims, but the average claim in Mississippi was a little over $15,000, not even half the federal government’s cost to provide a FEMA trailer. Katrina was a very large hurricane with high winds that caused property damage over a large multi-state area. Insurance companies paid Katrina homeowners claims in all 82 counties in Mississippi, all over Louisiana and Alabama, and in parts of Florida, Georgia, and Tennessee. Insurers paid 40,000 claims in the Jackson Metro area, 150 miles north of the Gulf of Mexico. Yet in the relatively narrow area along the Gulf, where the hurricane winds were much stronger and for a longer period of time, some insurance companies insisted that the winds had not been strong enough to cause more than superficial damage. There were very few lawsuits against insurance companies inland where there was no flooding. The problems were along the Coast where properties suffered both wind and flood damage.

Mississippi accounted for 17,464 of the 166,973 NFIP claims paid on Hurricane Katrina flooding; only 10.4% of the claims, but those claims accounted for 15.5% of the payments, because almost every NFIP claim in Mississippi was a total loss. There are several reasons why the average NFIP claim in Mississippi was almost $140,000.

The first reason, of course, is that Katrina’s storm surge was unprecedented in height and scope. The surge was more than 30 feet above sea level in Bay St. Louis, Waveland, and Pass Christian, but still more than 20 feet above sea level in Pascagoula, 60 miles east of the eye of the storm. The storm surge caused severe damage to the homes near the Gulf of Mexico that were 20 feet or less above sea level. Those homes also experienced several hours of high hurricane-force winds before the storm surge, so they should have been able to collect on both policies.

The second reason that the Mississippi NFIP claims payments were so high was the lack of adequate oversight of the insurance companies handling of the claims. There were thousands of NFIP policies on homes that were located on the bays, bayous, and rivers near the Gulf. Those properties flooded but the flood levels were not as high and did not have the force of the storm surge on the Gulf. Many of these cases had roof and structural damage from wind and wind-driven debris and also several feet of flooding. More importantly, they also had enough physical evidence remaining for a proper adjustment of the losses from wind and flooding.

Some of these cases have been the subject of prolonged legal disputes, and in almost every one that has become public, the insurance company immediately paid the policy limits on the flood policy without a detailed adjustment and then used the acceptance of the flood check against the homeowners when they tried to collect on the wind claim. It is almost certain that NFIP overpaid on dozens if not hundreds of these flood claims, but as GAO pointed out, FEMA did not ask the insurance companies to explain how they divided the wind loss from the flood loss.

The third reason that the Mississippi NFIP claims average was so high was because the flood insurance maps were horrible. The flood maps at the time of Katrina estimated that the 100-year flood on the Mississippi Gulf Coast was 12 or 13 feet above sea level. As a result, many homeowners whose homes were 16, 18, 20, or more feet above sea level were led to believe that they did not need flood insurance. Thousands of homes from several blocks to several miles inland had a few feet of flooding resulting in $25,000 or $50,000 or $75,000 in reparable losses, but did not have flood insurance. Those properties accounted for most of the CDBG Homeowners Grants, which had an average grant of $77,800.

The Flood Insurance Rate Maps in Mississippi were not storm surge maps. Back in October of 2005, the first time I testified about Katrina in this subcommittee, I came with posters to show the difference between the flood insurance map, which showed very little of City of Gulfport in the flood hazard area, and the evacuation map based on data from NOAA and the Corps of Engineers, which identified many more flood-prone areas. If the flood insurance map had been based on the same data as the evacuation map, many more people would have had flood insurance coverage and would have paid premiums, and many more homes would have been elevated a few feet off the ground and had less damage.

There is one simple reform that would make sure that more future hurricane damage will be covered by insurance premiums and less disaster assistance would be needed from the federal government. That reform is our legislation, H.R. 1264, to offer wind coverage as option with federal flood insurance. The program would close the gaps and uncertainties in hurricane coverage. It would eliminate the insurance companies’ conflict of interest when handling hurricane flood claims.  It would make future recoveries much faster and more efficient for homeowners, communities, and for federal taxpayers.

Since Katrina, insurance companies have abandoned coastal communities, creating an urgent insurance crisis along the Gulf Coast and Atlantic. State-sponsored high-risk pools have billions of dollars of hurricane exposure but are not able to build up enough reserves to cover a major hurricane that would result in a large volume of claims at one time.

Four Year Increase in Insurance Exposure in Selected State Insurance Pools

State Risk   Pool

Dec   2004 Exposure

Dec   2008 Exposure

Change
Florida Citizens[15]

$202.8   Billion

$436.8   Billion

+115%
North Carolina Beach Plan[16]

$31.6   Billion

$73.5   Billion

+132%
Texas Wind Pool[17]

$20.8   Billion

$58.6   Billion

+182%
South Carolina Wind Pool[18]

$6   Billion

$17   Billion

+184%
Mississippi Wind Pool[19]

$1.6   Billion

$6.3   Billion

+283%
Alabama Beach Pool[20]

$337   Million

$1.8   Billion

+448%
Georgia FAIR Plan Wind[21]

$565   Million

$2.1   Billion

+265%

The insurance industry has fled and they will not come back. If some of them do come back to coastal markets, history has shown that they will flee again after the next major disaster. Some insurance executives have admitted that the private insurance model will not work for low-frequency, high-severity events, such as major floods, major hurricanes, or major earthquakes.

Research by Dr. Howard Kunreuther and Dr. Erwann Michel-Kerjan at the Wharton Risk Management Center at the University of Pennsylvania found that catastrophe insurance premiums in the highest risk areas can be five to ten times higher than the expected claims losses.[22]

Other researchers have also found that insurance premiums in coastal areas are several times higher than the claims they expect to pay. The reason they have to charge such high premiums is that every year they have to account for the large amount of capital that would be needed if a major hurricane hits. In order to acquire or account for that much money, they have to pay high returns each year to attract capital investors or they have to buy reinsurance from reinsurance companies that pay high returns each year to attract capital investors. In either case, most of the resulting insurance premiums go to pay investors, not to pay future insurance claims.

Economist Lloyd Dixon of the RAND Corporation has explained the advantage of a government insurance program in high-risk areas:

“Government is not subject to the private-sector factors that produce large swings in premiums around expected loss in private insurance markets. Thus, compared with the private sector, government should be able to set insurance prices closer to expected loss for hurricanes and other catastrophic risks, and keep those prices closer to expected loss over time.[23]

 The federal government should be able to establish a hurricane insurance program that would spread risk geographically along the Gulf and Atlantic states. The federal program would be able to set rates based on the risk and create a stable insurance market. It would be very easy for the new program to determine wind risk and set wind premiums, because the state governments, the building industry, and the insurance industry have already done most of the work for them. For example, this is how the Mississippi Wind Pool sets its rates.

The Mississippi Wind Pool is the wind insurer of last resort for the three counties on the Gulf of Mexico and the three counties directly above those. The wind pool divides the territory into four rate zones:

Zone A – Between the Gulf of Mexico and the CSX Railroad

Zone B – Between the CSX Railroad and Interstate-10

Zone C – From I-10 north to the county lines

Zone D – The second tier of counties above the coastal counties

Within each zone, the wind pool board establishes risk-based rates for frame construction and masonry construction with several policy options for higher or lower deductibles. The wind pool also has a program that grants premium reductions for structures that meet a high wind-load mitigation standard.

The zones, the rates, and the mitigation credits are based on plenty of available data from the American Society of Civil Engineers, the International Code Council, and many other interested parties who study wind risk and building performance.

Other states with wind pools have established wind risk zones in similar manner, often using any easily identifiable and unambiguous feature to divide the zones. The Texas wind pool uses the Intracoastal Canal to divide the highest risk zone from the second zone.

Wind risk is much easier to determine and to map than is flood risk. The probability and severity of hurricane winds is much more predictable than the storm surge or the amount of rainfall, and the wind risk does not constantly change with any change in topography as flood risk does. Also, of course, wind insurance does not have to make assumptions about the performance of levees, dams, pumps, or other flood control structures.

The only problem that we would have setting up the new Multiple Peril Insurance Program would be dealing with the existing problems of NFIP: the oversight and management deficiencies, the inaccuracy of many of the flood maps, the poor record of the flood plain management, and the failure of the Write Your Own companies to honor their fiduciary responsibility to the federal government. The main source of all of these problems is that the NFIP and FEMA have proven the textbook case of just how inefficient a program can be if it is handed over to the contractors, vendors, and insurance companies who have conflicts of interest yet are allowed to obligate federal tax dollars with little federal government oversight.

I urge Congress to pass the Multiple Peril Insurance Act and when it passes I urge FEMA and NFIP to hire qualified, professional federal employees who will be accountable to the taxpayers to setup and manage the program. Please do not run it in the same manner as the current flood program.

[1] U.S. Government Accountability Office (GAO), Flood Insurance: Opportunities Exist to Improve Oversight of the WYO Program, GAO-09-455 (Washington,D.C.: August 2009).

[2] GAO, National Flood Insurance Program: Greater Transparency and Oversight of Wind and Flood Damage Determinations Are Needed, GAO-08-28 (Washington,D.C.: December 2007).

[3] GAO, National Flood Insurance Program: Greater Transparency and Oversight of Wind and Flood Damage Determinations Are Needed, GAO-08-28 (Washington, D.C.: December 2007). 

[4] Wind/Water Claim Handling Protocol memorandum to State Farm Claim Associates handling CAT PL in the Central and Southern Zones from Property and Casualty Claim Consulting Services, September 13, 2005.

[5] Oral Arguments before the Mississippi Supreme Court, Corban v. USAA.

[6] FEMA, Disaster Relief Fund: Monthly Status Report, Fiscal Year 2010 Report to Congress, March 15, 2010.

[7] ibid.

[8] GAO, Gulf Coast Disaster Recovery: Community Development Block Grant Program Guidance to States Needs to Be Improved, GAO-09-541 (Washington,D.C.: June 2009).

[9] Bruce R. Lindsay, Congressional Research Service, unpublished data from SBA

[10] FEMA, Disaster Relief Fund: Monthly Status Report, Fiscal Year 2010 Report to Congress, March 15, 2010.

[11] Mississippi Development Authority, unpublished data, April 16, 2010.

[12] Bruce R. Lindsay, Congressional Research Service, unpublished data from SBA

[13] FEMA, Disaster Relief Fund: Monthly Status Report, Fiscal Year 2010 Report to Congress, March 15, 2010.

[14] Robert Hartwig, Insurance Information Institute, Catastrophes, the Credit Crisis & Insurance Cycle, Ole Miss Insurance Symposium, March 26, 2008.

[22] Howard Kunreuther and Erwann Michel-Kerjan, Managing Large-Scale Risks in a New Era of Catastrophes, Wharton Risk Management Center, University of Pennsylvania, 2008. p. 141.

[23] Lloyd Dixon, James Macdonald, and Julie Zissimopoulos, Coastal Wind Insurance in the Gulf States, RAND Gulf States Policy Institute, 2007, p. 8.

Why NFIP flood insurance maps do not reflect storm surge risk

This Oct. 22 article, Coastal homes lack flood insurance because of maps, by Kate Spinner in the Sarasota Herald Tribune presents a good starting point for discussing the design of the National Flood Insurance Program and some of the problems that arise from flood risk maps, the limited mandate for flood insurance, and the reliance on insurance companies and their agents to sell policies.

Coastal homes lack flood insurance because of maps

by Kate Spinner, Sarasota Herald Tribune

Despite the sweeping Gulf of Mexico view from Tony and Kathy Zumbano’s ground-level kitchen — and the fact that a hurricane could pummel it with crashing 10-foot waves — the federal government does not consider their home a high flood risk.

In fact, when they bought the Venice beachfront property, their real estate agent told them they were lucky not to need flood insurance.

The reason: The maps underlying the nation’s flood insurance program do not account for direct hurricane strikes, which can cause catastrophic flooding. Instead, they rely on the average risk of flooding over a long period.

As a result, tens of millions of people in coastal counties across the nation underestimate the likelihood that their property could be inundated — and the possibility that they could take a huge financial loss or worse — if they base their home insurance or evacuation decisions on the flood maps.

… People are essentially on their own to assess their storm surge risk, says Bill Read, director of the National Hurricane Center. Too many assume they will never be in danger of flooding because they misinterpret the federal flood maps.

…To protect lives, scientists give states computer programs that show how high the storm surge could rise under the worst-case scenarios.

But it is up to the states and counties to share the information with residents. Keeping the public informed is complicated because some communities do not want to bring attention to their vulnerability, given the potential impact on real estate and business.

“Who’s going to tell you you need flood insurance? Not your Realtor, not your city,” Read said at a conference earlier this year.

Congress created the National Flood Insurance Program in 1968 to reduce the federal cost of natural flooding disasters. It requires anyone in the 100-year flood plain — an area where the flood risk over a 30-year span is an extraordinary 1 in 4 — to buy flood insurance if they have a federally backed mortgage.

But few outside that defined scenario buy flood insurance, even though the chances of flooding are much greater than the likelihood of fire or many of the other perils covered by standard policies.

Most major floods and storm surges cause significant water damage outside the 100-year floodplain. That gap is demonstrated almost every time a major storm strikes, including during Hurricane Irene, which slammed North Carolina in August.

Irene’s flooding from surge and waves caused $2 billion in damage in coastal regions alone, only about 10 percent of which was insured, said Tom Larsen, vice president of Eqecat, a disaster-modeling firm for insurance companies.

First let me say that it is great that the Sarasota Herald-Tribune is focusing on this aspect of the flood insurance program. The national media, to the extent that they write about flood insurance at all, only write that the premiums should be raised and allege without proof that the availability of flood insurance encourages and subsidizes risky development.

But how can flood insurance be facilitating development if property owners are not buying it and cities and Realtors and insurance agents are telling homebuyers that they do not need it? No developers build homes near the water because flood insurance is available there. They try to build outside the mandatory purchase areas so they can tell prospective buyers that they do not need flood insurance. Developers and Realtors and city and county officials commonly dispute proposed flood map changes that would expand the zones in which flood insurance is mandatory.

Although this article is from Florida, the issue it raises really is more of a problem in other places. Florida has a lot of low, coastal property, so flood insurance is required in many parts of the state. More than 2 million NFIP policies are in force in Florida, 37% of the 5.5 million policies nationwide. Yet, in the history of the program, Floridians have received less than 10% of the amount of total claims payments. In the National Flood Insurance Program, Florida has not been subsidized by ratepayers and taxpayers from other states.

Unfortunately, some statements in the article are not true or are misleading, beginning with the title. The Flood Insurance Risk Maps are not responsible for the many coastal homes that do not have flood coverage. The maps establish the zones where flood insurance is mandatory for a federally-backed mortgage and designate the building elevations within those zones. The zones do not divide those who should buy flood insurance from those who should not. They divide those who must buy flood insurance from those who should consider buying it.

Any property owner can buy flood insurance and any owner whose home is in a storm surge evacuation area should know to buy flood coverage. If you live within a few blocks of the ocean or some other large body of water and your neighborhood will be urged to evacuate when a hurricane approaches, there really is no excuse for not having flood insurance. Homes that are not in mandatory purchase areas get very cheap rates. It does not help that local government officials, home builders, real estate agents, lenders, and insurance agents often tell coastal home buyers that they do not need flood insurance if it is not required.  The fact that many homes that are in evacuation zones are not covered by flood insurance exposes a failure of insurance companies and their agents of their responsibility as NFIP contractors.

Let me explain how the program is supposed to work and why it doesn’t work well in some ways.

The flood insurance program, as with any government program, was created through political compromise. Before NFIP, no flood insurance was available, so flood victims depended on federal disaster assistance to recover from flood losses. The primary purposes of NFIP are to replace disaster assistance with flood insurance funded by premiums paid by the owners of flood-prone properties and to smuggle in some federal flood plain management rules as a condition of the insurance program.

Paranoia about federal government authority is endemic, so even while setting up a federal insurance program Congress limited the federal authority over local land use and zoning. Local governments can choose to participate in NFIP and must adopt certain flood plain management rules if they do so, but the process allows them plenty of input into the mapping that sets the zones, rates, and building requirements.

Almost every aspect of the flood insurance and the flood plain management rules is based on mapping the 1% chance flood risk, aka the 100-year flood. I am not sure how the 100-year flood became the standard for the program, but it is probably a reasonable level of risk to expect people to insure against. It is not a magic number or anything, but the insurance industry and its economists, actuaries, underwriters, and modelers have created a myth that they can accurately estimate the 1-percent chance losses for various risks.

Determining the 100-year flood risk is not even close to an exact science. After a local government opts to participate in NFIP, FEMA contractors use a combination of the historical record and modeling to propose flood maps estimating the 100-year flood elevations on a topographical map of the city or county. 

A lengthy comment period then begins during which local government officials, business leaders, and residents argue to change the lines on the maps to take some locations out of the mandatory purchase areas or to move some locations from a V-zone to an A-zone. V-zones are the areas estimated to be subject to the waves and forces of hurricane storm surge in the 100-year flood.  A-zones are subject to more conventional flooding from flowing or standing water without significant waves or tidal surge. Rates are higher within a V-zone because of the destructive force of the waves. Building requirements also are more extensive and more expensive within a V-zone. So one of the most contentious issues with any coastal flood map is locaton of the line dividing the V-zones and the A-zones.

A general rule used by FEMA is to divide V-zones from A-zones at the 3-foot wave line, but that is a very debatable and inexact standard. In most storms, the surge is nothing like a tsunami wave. The on-shore winds and the forward movement of a hurricane cause the water to pile up for hours in advance of landfall. The water level keeps getting higher and higher and then at landfall there is a faster, higher surge on top of the already high water. The storm surge has force because of the volume of water, not because of the heights of the waves. The wave-heights are more a function of the wind speed and the terrain than of the height of the water. So the 3-foot wave line is questionable as a means of defining the storm surge risk, but it is a standard that works in the favor of local governments and developers who try to limit the reach of V zones by hiring their own engineers to challenge the estimated wave heights.

Every city, town, or county has a separate mapping project for its jurisdiction, without coordination for a shared watershed, so it is common for the 100-year flood elevations to be different on adjacent properties separated by a city, county, or state boundary line.  This lack of watershed coordination between communities also creates problems with flood plain management and mitigation efforts.

All of the above is to explain that what we have are politically feasible flood maps, with the federal interest compromised by the local government interest, with the local officials commonly acting as surrogates for influential residents, developers and business interests who do not want the flood insurance mandate and do not want the building standards or premium rates that go with high risk. In every coastal community where I have compared the evacuation maps with the flood maps, there are areas identified as flood-prone on the evacuation maps that are not within the 100-year flood zones on the flood maps. Homes in those areas are not required to purchase flood insurance and not required to comply with flood-resistant building standards.  

We should not pretend that the engineers, actuaries, modelers, and flood plain managers can accurately figure a 100-year flood elevation for a particular location. Flood risk is ridiculously complicated. Within the watershed of a river, bayou, or any tributary stream, the flood risk changes constantly because of development upstream, downstream, across the stream, and because of erosion, deforestation, and other land use changes. Almost any place with  significant flood risk is affected by levees, dams, reservoirs, spillways, floodways, seawalls, floodwalls, or other projects or structures that attempt to control the flood risk. Those projects prevent frequent flooding, but they can create a false sense of security in the protected areas. If flood control structures fail or if a flood exceeds their design specifications, the result is often catastrophic.

Even if it were possible to accurately map the probability and severity to determine the 100-year flood elevation, there is a simple math anomaly that guarantees that wherever a major hurricane hits, the flood maps will have underestimated the storm surge. Consider the more than 1,000 miles of Gulf of Mexico coastline from Corpus Christi, Texas to Sarasota, Florida. Every year, there probably is about a 10% chance that a major hurricane will hit somewhere in there with a storm surge of 15 feet or higher. Yet for any specific community within that area, the probability of a major hurricane landfall is probably less than 1 percent. So almost every flood map from Texas to Florida is based the local 100-year surge of  around 10 to 12 feet, but about once a decade, some place on the Gulf Coast gets a storm surge of 15 to 20 feet or higher. The only map exceptions are the Mississippi Coast flood maps maps. Those maps expected a 12-foot 100-year surge before Katrina but the new post-Katrina maps estimate storm surge of 20-feet or higher as the 100-year event. So, what we have is a  system guaranteed to underestimate flood risk before a major hurricane and then require higher building elevations and stronger building requirements to the devastated communities trying to recover. The inefficiency of this system is evident at the Mississippi-Alabama state line where the 100-year flood estimate is six feet higher on the Mississippi side than on the Alabama side. Alabama will not get comparable maps until after it has been devastated by a direct hit from a major hurricane.

This disconnect between the evacuation maps and the flood maps is not just a Gulf Coast concern. The flood maps up the Atlantic in South Carolina, Virginia, Long Island, Cape Cod, and in-between are not designed for a direct hit from a hurricane. There are parts of Virginia Beach where the 100-year flood elevation is only 7 feet above sea level, but the water has risen that much from tropical storms that passed by without coming within 50 miles of the city. 

The problem is not whether the maps are accurately estimating the 100-year flood. The problem is that the 100-year flood is a stupid standard for designing a flood insurance program and building requirements and flood plain management rules in any place that is at risk of hurricane storm surge. As stated in the article from the Herald Tribune, lots of houses that would be flooded by a direct hit from a hurricane are not required to buy flood insurance. But, in my opinion, the more important mistake is that homes were built on slabs 12 feet above sea level. If they have a 15-foot surge, they will suffer substantial uninsured losses. If they have a 20-foot surge, their homes will be destroyed and some people probably may drown. I am not so concerned about raising their premiums. We need to be raising the houses, or at least requiring new homes to be built a few feet off the ground.

The simplest way to fix the flood maps is to sync them with the evacuation maps and then reset the premium structure and the building and flood mitigation standards to the new maps. If the home in the article above is estimated to be outside the 100-year flood zone but inside the area that would be flooded by storm surge from a direct hit by a major hurricane, then the owners should be required to buy flood insurance but the rates should be set to reflect the low probability. New homes in that area should be required to be built a few feet off the ground and the premiums discounted to reflect that reduced risk.

We probably are stuck with the system for estimating the probability and severity for setting premiums, but we should be able to use modern technology to update the maps to reflect development and other changes in the floodplain.

Unfortunately, any of these changes would require Congress to override the opposition of local governments and local developers to stricter floodplain management and building standards and give the federal government the authority and resources to establish and enforce those stronger standards, and that is not going to happen any time soon.

I am going to cut this post off here and continue the discussion of various issues with levees and other flood controls, and then finally get to my point about the failure of insurance companies as contractors to operate NFIP.

Decoding GAO reports

I plan to start a series of posts diagnosing the causes of specific problems with several government programs and expect to cite several reports from the Government Accountability Office (GAO) to support my evaluation and arguments. Before I start, I think it is a good idea to offer a preface how to read and interpret GAO reports.

The GAO is an arm of Congress. Its purpose is to audit and investigate the management of government programs and policies and report its findings to Congress. For GAO to be effective, Members of Congress must have confidence that it is nonpartisan and nonpolitical. This can be extremely difficult because Congress itself is so partisan and political. Every government program has its supporters and opponents, both in Congress and among the interest groups that influence the legislative process and political debate. Even if GAO is completely apolitical in its approach, any criticism of a program or its federal managers or its contractors or grantees or any other interested group will be interpreted and used in political ways.

Because it operates in such a political environment, GAO is very cautious in the language of its reports, especially in the titles, summaries, conclusions, and recommendations. Members of Congress, their staffs, and the media rarely read more than the title and a paragraph or two of the summary. More commonly, they interpret GAO reports based on the press releases about them from the interest groups. Each interest group claims that GAO has validated its position, and the watered-down language of the GAO summaries allows them to get away with it.

Now, I was one of the few people on Capitol Hill who dug down into the data and studied the tables and appendices of GAO reports. That’s just the kind of wonk I am. My undergraduate degree is in Philosophy, so I never accept conclusions unless I have validated the assumptions, methodology, and data that led to those conclusions.

It didn’t take very many GAO reports for me to figure out that the data and tables and appendices often point to much stronger findings than were expressed in the titles and summaries. I also started to figure out something of a GAO code in the titles of reports. 

A few years ago I was making a list of unfulfilled recommendations from GAO reports and I noticed that quite a few reports had similar titles: “Opportunities Exist” to improve the management and/or oversight and/or accountability and/or efficiency of the contractors or grantees or vendors or recipients of whatever program was the subject of the report.  It turned out that the “Opportunities Exist” reports exposed some of the most dysfunctional, mismanaged programs in the federal government. Despite the softly worded title, these reports exposed the federal programs in the most urgent need of reform.

This afternoon, I went to gao.gov and searched for the phrase “opportunities exist” in the report title. The result was 146 reports, 40 of which are from 2010 or 2011. Here are the 20 most recent “Opportunities Exist” reports: 

Federal Reserve System:Opportunities Exist to Strengthen Policies and Processes for Managing Emergency Assistance GAO-12-122T, Oct 4, 2011

Iraq Drawdown:Opportunities Exist to Improve Equipment Visibility, Contractor Demobilization, and Clarity of Post-2011 DOD Role GAO-11-774, Sep 16, 2011
 
Federal Reserve System:Opportunities Exist to Strengthen Policies and Processes for Managing Emergency Assistance GAO-11-696, Jul 21, 2011
 
Coast Guard:Opportunities Exist to Further Improve Acquisition Management Capabilities GAO-11-480, Apr 13, 2011
 
Employment and Training Programs:Opportunities Exist for Improving Efficiency GAO-11-506T, Apr 7, 2011
 
Rural Housing Service:Opportunities Exist to Strengthen Farm Labor Housing Program Management and Oversight GAO-11-329, Mar 30, 2011
 
Moving Illegal Proceeds:Opportunities Exist for Strengthening the Federal Government’s Efforts to Stem Cross-Border Currency Smuggling GAO-11-407T, Mar 9, 2011
 
Military Personnel:DOD Addressing Challenges in Iraq and Afghanistan but Opportunities Exist to Enhance the Planning Process for Army Medical Personnel Requirements GAO-11-163, Feb 10, 2011
 
Defense Acquisitions:Opportunities Exist to Improve DOD’s Oversight of Power Source Investments GAO-11-113, Dec 30, 2010
 
Statewide Transportation Planning:Opportunities Exist to Transition to Performance-Based Planning and Federal Oversight GAO-11-77, Dec 15, 2010
 
GAO Travel Cards:Opportunities Exist to Further Strengthen Controls OIG-11-1, Dec 7, 2010
 
FEMA Flood Maps:Some Standards and Processes in Place to Promote Map Accuracy and Outreach, but Opportunities Exist to Address Implementation Challenges GAO-11-17, Dec 2, 2010
 
Human Capital:Opportunities Exist for DOD to Enhance Its Approach for Determining Civilian Senior Leader Workforce Needs GAO-11-136, Nov 4, 2010
 
Federal Oil and Gas Leases:Opportunities Exist to Capture Vented and Flared Natural Gas, Which Would Increase Royalty Payments and Reduce Greenhouse Gases GAO-11-34, Oct 29, 2010
 
Information Technology:Opportunities Exist to Improve Management of DOD’s Electronic Health Record Initiative GAO-11-50, Oct 6, 2010
 
Troubled Asset Relief Program:Opportunities Exist to Apply Lessons Learned from the Capital Purchase Program to Similarly Designed Programs and to Improve the Repayment Process GAO-11-47, Oct 4, 2010
 
Recovery Act:Opportunities Exist to Increase the Public’s Understanding of Recipient Reporting on HUD Programs GAO-10-966, Sep 30, 2010
 
Recovery Act:Further Opportunities Exist to Strengthen Oversight of Broadband Stimulus Programs GAO-10-823, Aug 4, 2010
 
Federal Contracting:Opportunities Exist to Increase Competition and Assess Reasons When Only One Offer Is Received GAO-10-833, Jul 26, 2010
 
Federal Student Loan Programs:Opportunities Exist to Improve Audit Requirements and Oversight Procedures GAO-10-668, Jul 21, 2010

And here is one from 2009 that I will feature prominently in a subsequent post:

Flood Insurance:Opportunities Exist to Improve Oversight of the WYO Program GAO-09-455, Aug 21, 2009