United States Government Accountability Office

GAO Report to Congressional Committees

NATIONAL FLOOD 

INSURANCE 

PROGRAM 

FEMA’s Management 

and Oversight of 

Payments for 

Insurance Company 

Services Should Be 

Improved 

September 2007 

 

GAO-07-1078 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

September 2007

NATIONAL FLOOD INSURANCE 

PROGRAM 

FEMA’s Management and Oversight of 

Payments for Insurance Company 

Services Should Be Improved 

Highlights of GAO-07-1078, a report to 

congressional committees 

Extraordinary recent flood events

raise serious questions about the 

solvency of the National Flood 

Insurance Program (NFIP), which

is administered by the Federal

Emergency Management Agency

(FEMA). The NFIP is largely

implemented by private insurance 

companies that sell and service

policies and adjust claims under 

the Write Your Own (WYO) 

Program. This report, prepared 

under the authority of the 

Comptroller General, examines 

(1) how much FEMA paid the WYO 

companies in recent years for 

operating costs and how FEMA 

determined payment amounts; 

(2) how FEMA’s approach to 

determining operating costs 

assures that payments are 

reasonable estimates of companies’ 

expenses; and (3) how FEMA 

assures that financial and 

management controls are in place

for the WYO program and operate

as intended. To do these 

assessments, GAO interviewed 

FEMA and insurance officials, and

analyzed statutes, regulations, 

payment data, methodologies, and 

audits of WYO companies.

What GAO Recommends

GAO recommends that FEMA take 

steps to ensure that it has a 

reasonable estimate of actual 

expenses WYO companies incur to

help determine payments for 

services and that financial audits 

are performed. The Department of

Homeland Security reviewed a 

draft of this report and generally 

agreed with our recommendations. 

FEMA’s payments to WYO insurance companies for operating costs ranged 

from more than a third to almost two-thirds of the total premiums paid by

policyholders to the NFIP for fiscal years 2004 through 2006. In fiscal years 

2005 and 2006, larger payments to WYO insurance companies were the result

of settling an unprecedented number and dollar amount of claims for 

damages resulting from major hurricanes and flood events including 

Hurricane Katrina. To determine the amount of these payments, FEMA 

negotiated payment approaches with insurance industry representatives

when it established the current WYO program in 1983 based on industry 

averages for operating expenses for other lines of insurance (such as 

homeowners, commercial, and fire), past practice, and discussion. 

The approach FEMA uses to determine operating costs for WYO insurance 

companies, rooted in policies negotiated and established about 25 years ago, 

cannot ensure that payments are based on reasonable estimates of actual 

expenses because actual expenses incurred by the companies for their 

services to the NFIP are not considered. Although it has authority to do so, 

FEMA does not collect data on actual WYO flood insurance expenses that 

could provide a basis for insuring that the WYO payments are based on a 

reasonable estimate of actual expenses. FEMA officials said that they have 

not asked WYO insurance companies to provide expense information due to 

concerns that the approach would increase FEMA’s administrative costs and 

cause a decline in WYO program participation. However, some data on 

expenses WYO insurance companies allocate to flood insurance are 

available. FEMA officials said that they cannot use this information due to 

reporting inconsistencies. Also, there is some precedent in two similar 

public-private insurance partnerships for collecting actual expense 

information. FEMA’s decision to rely on long-standing practices does not 

meet federal internal control standards that agencies be held accountable 

for, among other things, stewardship of government resources. 

Biennial financial statement audits—FEMA’s primary mechanism to provide 

assurance that it receives complete and accurate financial management 

information from the WYO insurance companies—were not performed 

consistently as required by regulation. FEMA regulations require each 

participating company to arrange and pay for these audits by independent 

certified public accounting firms. However, many WYO insurance companies 

did not comply with the schedule in recent years. For example, for fiscal 

years 2005 and 2006, 5 of 94 participating companies had biennial financial 

statement audits performed. FEMA officials said they allowed some 

companies to delay having the audits done because they were in the process 

of contracting with new subcontractors to perform their financial reporting 

responsibilities. Nonetheless, without the required biennial audits, FEMA 

lacks an appropriate internal control mechanism for effective program 

oversight. 

www.gao.gov/cgi-bin/getrpt?GAO-07-1078.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact William O.

Jenkins, (202) 512-8757 or

jenkinswo@gao.gov. 
Contents 

Letter 1

Results in Brief 4 

Background 8

Payments to WYO Insurance Companies Comprised Up to Almost 

Two-Thirds of Total Premium Revenue in Recent Years Based 

on Payment Methodologies Established in 1983 16 

FEMA’s Long-standing Approach for Establishing a Schedule of 

Operating Costs Cannot Ensure That WYO Insurance Company 

Payments Are Based on Reasonable Estimates of Actual 

Expenses 26

Financial Management Controls Did Not Provide Assurance That 

Payments to WYO Insurance Companies Were Proper and in 

Accordance with Program Requirements 34 

Conclusions 40

Recommendations for Executive Action 41 

Agency Comments and Our Evaluation 41 

Appendix I Scope and Methodology 44 

AppendixII Percentage Allowances FEMA Authorized WYO 

Insurance Companies to Retain for Operating 

Expenses Incurred in Selling and Servicing NFIP 

Policies (Fiscal Years 1984–2007) 46 

Appendix III Comments from the Department of 

Homeland Security 47 

Appendix IV GAO Contact and Staff Acknowledgments 51 

Related GAO Products 52 

National Flood Insurance Program 52 

Federal Crop Insurance Corporation 52 

Page i GAO-07-1078 National Flood Insurance Program 
Tables 

Table 1: Payments to WYO Insurance Companies Received for 

Services Rendered to the NFIP (Fiscal Years 2004-2006) 17 

Table 2: Methodology for Calculating Payments to WYO Insurance 

Companies for Selling and Servicing NFIP Policies and 

Actual Payments Made, Fiscal Years 2004-2006 18 

Table 3: Incentive Bonus Award Structure and Distribution to WYO 

Companies, Fiscal Years 2004-2006 21 

Table 4: Methodology for Calculating Payments to WYO Insurance 

Companies for Adjusting and Processing Claims after a 

Flood-Loss Event, and Actual Payments Made, Fiscal 

Years 2004-2006 23 

Table 5: Excepts from the Adjuster Fee Schedule 24 

Figures 

Figure 1: NFIP Policies in Force, 1978-April 2007 9 

Figure 2: NFIP Payments to Claimants for 2005 Compared to Other 

Years 11

Figure 3: Key Participants in the NFIP WYO Program 15 

Figure 4: Biennial Financial Statement Audits of WYO Insurance 

Companies Completed from Fiscal Years 2001 to 2006 37 

Abbreviations 

CPA certified public accountant 

DHS Department of Homeland Security 

FCIC Federal Crop Insurance Corporation 

FEMA Federal Emergency Management Agency 

NAIC National Association of Insurance Commissioners 

NFIP National Flood Insurance Program 

OIG Office of Inspector General 

WYO Write Your Own 

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Page ii GAO-07-1078 National Flood Insurance Program 
United States Government Accountability Office

Washington, DC 20548 

September 5, 2007 

Congressional Requesters

The Federal Emergency Management Agency (FEMA), a component of the 

Department of Homeland Security (DHS), provides insurance protection 

against flood damage to homeowners, businesses, and others, and 

assumes the risk for insured flood losses, through the National Flood 

Insurance Program (NFIP). The NFIP is largely implemented by private 

insurance companies that participate in FEMA’s Write Your Own (WYO) 

program. Through the WYO program, insurance companies enter into 

agreements with FEMA to sell and service flood insurance policies and 

adjust claims after flood losses. As of December 2006, 88 insurance 

companies were participating in the WYO program. 

While the NFIP, by design, is not actuarially sound because Congress 

authorized subsidized insurance rates for some policyholders, the program 

was largely successful until recent years in paying its expenses with 

premium revenues—the funds paid by policyholders for their annual flood 

insurance coverage. As a result, since its inception in 1968, in most years 

the NFIP paid for flood losses and operating expenses with policy 

premium revenues, rather than tax dollars. However, because the 

program’s premium rates have been set to cover losses in an average year

based on program experience that did not include any catastrophic losses, 

the program has been unable to build sufficient reserves to meet future 

expected flood losses.1

 The series of extraordinary flood events in recent 

years—including Hurricane Katrina in August 2005, which inflicted 

extensive damage on the Gulf Coast—has raised serious questions about 

the financial solvency of the NFIP and highlighted this known program 

limitation. Collecting premiums that are based on an average historical 

loss year does not enable the NFIP to build sufficient reserves to cover 

losses that exceed the historic averages. As of April 2007, FEMA had paid 

almost $16 billion in claims for flood damage as a result of Hurricane 

Katrina, more than the $14.6 billion it had paid for the cumulative total of

all flood events from 1968 until Hurricane Katrina occurred. After Katrina, 

FEMA was unable to cover all of the claims received for flood losses and 

 1

See GAO, Flood Insurance: Information on the Financial Condition of the National

Flood Insurance Program, GAO-01-992T (Washington, D.C.: July 2001). 

Page 1 GAO-07-1078 National Flood Insurance Program 
had to increase its borrowing authority from the U.S. Treasury from 

$1.5 billion to more than $20 billion. In March 2006, we designated the 

NFIP as a high-risk program,2

 and Congress has been considering a 

number of legislative changes to improve the program’s financial solvency.

Compounding the dramatic increase in the amount paid on flood 

insurance claims have been increases in the amounts of money FEMA has 

been required to pay for services to WYO insurance companies.3

 This 

report, prepared under the authority of the Comptroller General in order 

to contribute to the discussion about ways to improve the NFIP’s financial 

solvency, addresses the following questions: (1) In recent years, how much

in operating costs did FEMA pay to the WYO insurance companies that sell 

and service NFIP policies and adjust claims and how does FEMA 

determine the amount of these operating costs? (2) How does FEMA 

provide assurance that the approach it uses to determine operating costs 

is based on reasonable estimates of WYO insurance companies’ expenses? 

and (3) How does FEMA provide assurance that financial and 

management controls in place for the WYO program operate as intended 

and in accordance with program requirements? 

This is one of several reports and testimonies we have completed or have

under way related to the administration and management of the NFIP 

since the unprecedented losses from Hurricane Katrina and other major 

flood events in 2004 and 2005 illustrated the extent of the federal 

government’s exposure to losses in catastrophic flood years. Related work 

we recently completed addressed issues including the NFIP’s financing,

oversight and management, implementation of the program in the 

aftermath of Hurricanes Katrina and Rita, the inventory of insured 

properties that suffer repetitive flood losses, and the status of efforts to 

revise and improve the nation’s flood maps. (See the list of related GAO 

products on page 52 of this report.) In addition, we have reviews under 

way assessing how insurance companies manage losses that may be 

covered by both wind and flood insurance, the impact of subsidized 

properties on the NFIP, and additional aspects of FEMA’s financial 

oversight of WYO insurance companies. 

 2

See GAO, GAO’s High-Risk Program, GAO-06-497T (Washington, D.C.: Mar. 15, 2006).

GAO has periodically identified for Congress high-risk areas that are in need of broadbased transformations to address major economic, efficiency, or effectiveness challenges. 

3

WYO insurance companies may retain premium revenues collected or receive 

disbursements from the NFIP Fund as payment for services rendered. 

Page 2 GAO-07-1078 National Flood Insurance Program 
To assess how much FEMA paid to WYO insurance companies in recent

years for operating costs and how FEMA determines the amount of these 

operating costs, we interviewed FEMA officials, examined documentation

such as FEMA’s financial subsidy arrangement with the WYO insurance 

companies, and analyzed FEMA data on amounts paid to WYO insurance 

companies for fiscal years 2004-2006. We examined internal controls 

FEMA had in place to ensure the reliability of the data. We determined 

that the information was sufficiently reliable for our purposes by 

discussing with officials the internal control processes in place, observing

the monthly process used by FEMA’s program contractor to reconcile cost

information submitted by WYO insurance companies, and reviewing audits

of DHS financial statements. We conducted semi-structured interviews 

with representatives of a judgmental sample of five WYO insurance 

companies and the National Association of Insurance Commissioners 

(NAIC)

4

 to obtain their perspectives on FEMA’s payment methodologies.

We chose our sample to include representatives of four of the five largest 

participating WYO insurance companies in terms of their market share of 

NFIP policies in force in 2006 and one mid-sized WYO insurance company. 

However, our sample is not a representative sample of all participating 

WYO insurance companies, so the views expressed should not be 

generalized to the universe of the 88 participating companies. 

To determine how FEMA provides assurance that its approach to 

determining operating costs for WYO insurance companies results in 

reasonable estimates of the companies’ expenses, we reviewed the 

statutory and regulatory framework for establishing a schedule of 

operating costs and federal internal control standards, and we obtained 

the views of FEMA and insurance industry officials on the effectiveness of 

the current payment approach and the potential implications of 

implementing other payment methodologies. We also assessed how the 

approach FEMA currently uses to pay WYO insurance companies for their 

services compares to payment methodologies used by two similar publicprivate insurance arrangements. These are (1) the Federal Crop Insurance 

Corporation’s (FCIC) arrangement with private insurers for handling 

expenses associated with insuring agricultural crop values; and (2) the 

NFIP’s arrangement with its Direct Servicing Agent, a FEMA contractor 

that sells and services policies and adjusts claims on about 4 percent of 

flood insurance policies that are not, for various reasons, handled through 

the WYO program. 

 4

NAIC is the professional association of state insurance regulators. 

Page 3 GAO-07-1078 National Flood Insurance Program 
To determine the extent to which FEMA’s financial management controls 

for WYO companies provide assurance that payments are proper and in 

accordance with program requirements, we documented FEMA’s 

regulations and procedures for monitoring and overseeing payments of 

expenses to WYO insurance companies for selling and servicing NFIP 

policies. We analyzed the schedule and results of biennial financial 

statement audits conducted for fiscal years 2001 to 2006. We also 

interviewed officials of FEMA and its program contractor. In addition, we 

reviewed financial audits of the NFIP done by the DHS Office of Inspector 

General (OIG) for fiscal years 2003 to 2006. We performed our work from 

June 2006 through July 2007, in accordance with generally accepted 

government auditing standards. Additional details on our scope and 

methodology are in appendix I. 

FEMA’s total payments to WYO insurance companies for operating costs 

ranged from $619.2 million to $1.6 billion (in current dollars, not adjusted 

for inflation) or from more than a third to almost two-thirds of the total 

premiums paid by policyholders to the NFIP for fiscal years 2004 through 

2006. In fiscal years 2005 and 2006, payments were larger than for fiscal 

year 2004 because the WYO insurance companies received payments in 

these years for settling an unprecedented number and dollar amount of 

claims for damages resulting from Hurricanes Charley, Ivan, Frances, and 

Jeanne in Florida and other East Coast and Gulf Coast states in 2004 and 

Hurricanes Katrina, Rita, Wilma, and other flood events in 2005. To 

determine the amount of these payments, FEMA negotiated payment 

approaches with insurance industry representatives when it established 

the current WYO program in 1983 based on industry averages for operating 

expenses for other lines of insurance (such as homeowners, commercial, 

and fire), past practice, and discussion with WYO insurance company 

participants and other insurance industry representatives. While FEMA 

has periodically adjusted payment amounts since 1983, the underlying 

methodologies it uses to calculate them have not significantly changed. 

FEMA pays WYO companies for selling and servicing insurance policies 

and adjusting and processing policyholders’ claims after a flood event

occurs. For selling and servicing NFIP policies, FEMA pays WYO 

insurance companies (1) a flat 15 percent of premiums for agent 

commissions; (2) a percentage for operating expenses, which historically 

also averages about 15 percent, based on industry averages for other lines 

of insurance; and (3) bonuses of up to 2 percent of their total annual 

premium revenues for increasing the number of NFIP policies they sell. 

After flood losses, FEMA pays WYO insurance companies for adjusting 

and processing policyholders’ claims according to (1) an adjustment fee 

Results in Brief 

Page 4 GAO-07-1078 National Flood Insurance Program 
schedule used by the insurance industry for other types of insurance 

claims and (2) an allowance of 3.3 percent of each claim settlement 

amount to pay for their processing expenses. The WYO insurance 

companies collect their operating costs from FEMA based on these 

methodologies. Any portion of the premium revenues retained by the WYO 

insurance companies that are not used to cover expenses may be retained 

as profit. 

The approach FEMA uses to determine operating costs for WYO insurance 

companies, rooted in policies negotiated and established about 25 years 

ago, cannot ensure that payments are based on reasonable estimates of 

actual expenses because FEMA does not consider actual expenses 

incurred by the companies for their services to the NFIP and does not 

collect actual expense data from the WYO insurance companies. For 

example, the payment formula FEMA uses to set a payment rate of 

3.3 percent of claims settlement amounts for claims processing expenses, 

such as setting up operations in flood-damaged areas, has been in place 

since the program’s inception. Since it created the program in 1983, FEMA 

has had no basis, other than discussion with WYO insurance companies, to 

determine whether that payment rate is a reasonable estimate of expenses

incurred. As a result of the unprecedented number and cost of flood 

insurance claims after Hurricane Katrina, the amount FEMA paid WYO 

insurance companies for claims processing expenses based on this 

formula increased more than tenfold from about $30 million in fiscal year 

2004 to about $385 million in fiscal year 2005 not adjusted for inflation. In 

response, FEMA officials said they are considering a possible cap on the 

amount of payments in this expense category in future catastrophic loss 

years. Under the National Flood Insurance Act of 1968, insurance 

companies choosing to participate in the WYO program must keep such 

records as FEMA prescribes and provide access to these records for 

purpose of audit and examination. Although it has the authority to do so, 

FEMA does not collect data on actual WYO flood insurance expenses. 

FEMA’s reluctance to impose additional cost accounting requirements on 

WYO insurance companies is based on concerns that the approach would 

(1) increase FEMA’s cost of administering the program and (2) result in a 

decline in the number of insurance companies that choose to participate in

the WYO program. Nonetheless, there is some precedent in two similar 

public-private insurance partnerships for considering actual expense data.

The FCIC, which pays insurance companies a percentage of premium 

revenue for costs related to insuring agricultural crop values against 

financial losses by events such as droughts and other natural disasters, 

requires the companies to submit detailed expense reports in a consistent 

format. The NFIP Direct Servicing Agent, a FEMA contractor that sells and

Page 5 GAO-07-1078 National Flood Insurance Program 
services policies and adjusts claims on about 4 percent of flood insurance 

policies that are not, for various reasons, handled through the WYO 

program, has also calculated its operating costs. Based on standards for 

internal control in the federal government, FEMA is responsible for 

implementing controls that serve as the first line of defense in

safeguarding assets, preventing and detecting errors and fraud, and 

helping to achieve desired results through effective stewardship of public 

resources.5

 FEMA has not significantly changed the payment policies that 

are the foundation of the WYO program in more than 2 decades, and 

because FEMA cannot ensure that its approach to establishing a schedule 

of operating costs is based on a reasonable estimate of actual expenses or 

that the amount paid was reasonable, it may not have effectively 

implemented these controls. 

Biennial financial statement audits—FEMA’s primary management control 

mechanism to provide assurance that it receives complete and accurate

financial management information from the WYO insurance companies—

were not performed as required by regulation. FEMA’s regulations and 

WYO Financial Control Plan require each participating WYO insurance 

company to arrange and pay for biennial financial statement audits by 

independent certified public accountants (CPA) that evaluate its financial 

statements for activities related to the NFIP. The audits are to be funded 

by the WYO insurance companies from the payments they receive from 

FEMA for selling and servicing policies (about 15 percent of premium 

revenue). However, many insurance companies participating in the WYO 

program received these payments in full yet did not comply with the 

requirement to have biennial audits done during the period from fiscal 

year 2001 to 2006. Specifically, for fiscal years 2001 and 2002, 40 of the 

98 participating companies had financial audits performed by independent 

CPA firms. For fiscal years 2002 to 2003, 37 of the 103 participating 

companies had financial statement audits performed by CPA firms. For 

fiscal years 2003 and 2004, 35 of 107 participating companies had the 

financial audits performed; for fiscal years 2005 and 2006, 5 of 

94 participating companies had biennial financial statement audits 

performed. FEMA officials said that FEMA granted 32 additional WYO 

insurance companies extensions to complete the biennial financial audits 

for 2005 and 2006 by September 30, 2007. The officials said that the 

extensions were allowed because the WYO insurance companies were in 

 5

See GAO, Standards for Internal Control in the Federal Government, 

GAO-AIMD-00.21.3.1(Washington, D.C.: November 1999). 

Page 6 GAO-07-1078 National Flood Insurance Program 
the process of contracting with new vendors or subcontractors to perform 

their financial reporting responsibilities and conducting financial audits 

would have been particularly costly and difficult. FEMA did not have a 

mechanism in place for tracking and reviewing the results of the biennial 

financial statement audits that were performed. FEMA officials were able

to provide us with copies of only two biennial audit reports until the 

conclusion of our audit when they asked WYO insurance companies and 

their subcontractors to send copies of additional reports that might have 

been prepared. Without the required biennial audits, FEMA lacks an 

appropriate internal control mechanism for effective program oversight to 

help ensure that payments made to WYO insurance companies are proper 

and in accordance with program requirements. According to the standards 

for internal controls within the federal government, such control 

mechanisms are important in agencies like FEMA where large amounts of 

data are processed; where audit techniques may be used to identify 

inefficiencies, waste, or abuse; and where managers should be able to 

promptly review and evaluate audit findings in order to identify 

opportunities for improvements. 

We are recommending that the Secretary of DHS direct the Under 

Secretary of Homeland Security, FEMA to take two actions to strengthen

and improve its administration of the NFIP: (1) take steps to ensure that 

its approach to establishing a schedule of operating costs is based on a 

reasonable estimate of actual expenses by reviewing appropriate 

documentation of expenses incurred by WYO insurance companies; and 

(2) ensure that biennial financial statement audits of WYO insurance 

companies are conducted by independent CPA firms as required by FEMA 

regulation, and that FEMA reviews the audits to help ensure that payments

made are proper and in accordance with program requirements. 

In commenting on a draft of this report, DHS generally agreed with our 

recommendations to improve financial accountability over payments the 

NFIP makes to the WYO insurance companies. However, FEMA said our 

presentation in table 1 of payments to WYO insurance companies for all 

NFIP services for fiscal years 2004 to 2006 as a percentage of total 

premium revenues was “inappropriate and misleading” because it was 

most appropriate to compare the costs of adjusting and processing claims 

to total losses in a year, not premium revenue. We disagree. We believe it

is appropriate to summarize aggregate expense payment data as a 

percentage of premiums collected because the NFIP is designed to pay for 

flood losses and operating expenses to the extent possible with premium 

revenues rather than tax dollars. FEMA’s comments are contained in 

appendix III. 

Page 7 GAO-07-1078 National Flood Insurance Program 
Congress established the NFIP in the National Flood Insurance Act of 1968 

to provide policyholders with some insurance coverage for flood damage,

as an alternative to disaster assistance, and to try to reduce the escalating 

costs of repairing flood damage.6

 FEMA, within DHS, administers the NFIP 

and is responsible for its management and oversight. Floods are the most 

common and destructive natural disaster in the United States. In fact, 

according to NFIP statistics, 90 percent of all natural disasters in the 

United States involve flooding. However, flooding is generally excluded

from homeowner policies that typically cover damage from other losses, 

such as wind, fire, and theft. Because of the catastrophic nature of 

flooding and the inability to adequately predict flood risks, private 

insurance companies have largely been unwilling to underwrite and bear 

the risk of flood insurance. Under the NFIP, the federal government 

assumes the liability for the insurance coverage and sets rates and 

coverage limitations, among other responsibilities. In creating the NFIP,

Congress found that a flood insurance program with “large-scale 

participation of the Federal Government and carried out to the maximum 

extent practicable by the private insurance industry is feasible and can be 

initiated.”7

Background 

Overview of the National 

Flood Insurance Program 

As of May 2007, more than 20,300 communities across the United States 

and its territories participated in the NFIP by adopting and agreeing to 

enforce state and community floodplain management regulations to 

reduce future flood damage. In exchange, the NFIP makes federally 

backed flood insurance available to homeowners and other property 

owners in these communities. Homeowners with mortgages from federally

regulated lenders on property in communities identified to be in special 

high-risk flood hazard areas are required to purchase flood insurance on 

their dwellings for at least the outstanding mortgage amount. Optional, 

lower-cost coverage is also available under the NFIP to protect homes in 

areas of low to moderate risk. To insure furniture and other personal 

property items against flood damage, homeowners may purchase separate 

NFIP personal property coverage. Although premium amounts vary 

according to the amount of coverage purchased and the location and 

 6

The National Flood Insurance Act of 1968, as amended, is codified at 42 U.S.C. § 4001 to 

4129. 

7

42 U.S.C. § 4001(b)(2). 

Page 8 GAO-07-1078 National Flood Insurance Program 
characteristics of the property to be insured, the average yearly premium 

for a 1-year policy was $475, as of February 2007.

As shown in figure 1, the NFIP has grown from about 1.5 million policies 

in 1978 to about 5.4 million policies in April 2007.

Figure 1: NFIP Policies in Force, 1978-April 2007 

Policies in force

Source: FEMA.

Calendar year

0

800,000

1,600,000

2,400,000

3,200,000

4,000,000

4,800,000

5,600,000

199

1999

2000

2001

2002

2003

2004

2005

2006

2007

8

19

1990

1991

1992

1993

1994

1995

1996

1997

89

1988

1987

1986

1985

1984

1983

1982

1981

1980

197

1979

8

To the extent possible, the NFIP is designed to pay operating expenses 

and flood insurance claims with premiums collected on flood insurance 

policies rather than by tax dollars. FEMA has statutory authority to 

borrow funds from the U.S. Treasury to keep the NFIP solvent in years 

when losses are heavy.8

 The NFIP, by design, is not actuarially sound 

because Congress authorized subsidized insurance rates to be made 

available for policies covering certain structures to encourage

communities to join the program and premiums are based on the average

historical loss year; therefore the NFIP does not build sufficient reserves 

to cover losses that exceed the historic averages. The subsidized 

properties are generally referred to as Pre-FIRM (Flood Insurance Rate

Map) buildings. The legislative history of the National Flood Insurance Act 

 8

42 U.S.C. § 4016. 

Page 9 GAO-07-1078 National Flood Insurance Program 
recognized that insurance for existing buildings constructed before the 

NFIP was established would be extremely expensive because many of 

them were flood prone and did not comply with NFIP floodplain 

management standards that went into effect after they were built. 

Until the last several years, FEMA had been generally successful in paying

flood losses and expenses with premium revenue, exercising its borrowing 

authority three times in the last decade when claims payments exceeded 

available fund balances. In each instance, FEMA repaid the funds with 

interest. Prior to Hurricane Katrina in August 2005, FEMA had also made 

substantial progress in repaying the borrowing it had undertaken to pay 

losses for the 2004 hurricane season during which Hurricanes Charley, 

Ivan, Frances, and Jeanne caused heavy flood damage in Florida and other 

East Coast and Gulf Coast states. However, because the program’s 

premium rates have been set to cover losses in an average year based on 

program experience that did not include any catastrophic losses, the 

program has been unable to build sufficient reserves to meet future 

expected flood losses. 

Hurricanes Katrina, Rita, and Wilma, in 2005, had a far-reaching impact on

the financial solvency of the NFIP. Legislation increased FEMA’s 

borrowing authority from a total of $1.5 billion prior to Hurricane Katrina 

to $20.8 billion by March 2006, and, as of May 2007, FEMA’s outstanding 

debt to the Treasury was $17.5 billion. As we have reported, it is unlikely 

that FEMA can repay a debt of this size and pay future claims in a program 

that generates premium income of about $2 billion a year.9

 Legislation has

been introduced in Congress to increase FEMA’s borrowing authority to 

pay interest on the debt and attention has focused on the extent of the 

federal government’s exposure for claims payments in future catastrophic 

loss years and ways to improve the program’s financial solvency. 

Figure 2 shows the magnitude of the loss payments for Hurricane Katrina 

and other flood events in 2005 compared to claims payments over other 

years. 

 9

See GAO, Federal Emergency Management Agency: Challenges for the National Flood

Insurance Program, GAO-06-335T (Washington, D.C.: Jan. 25, 2006).

Page 10 GAO-07-1078 National Flood Insurance Program 
Figure 2: NFIP Payments to Claimants for 2005 Compared to Other Years 

Total payments made (dollars in billions)

Source: FEMA.

Calendar year

0

2

4

6

8

10

12

14

16

18

1972-1976

1977

199

1999

2000

2001

2002

2003

2004

2005

2006

8

19

1990

1991

1992

1993

1994

1995

1996

1997

89

1988

1987

1986

1985

1984

1983

1982

1981

1980

197

1979

8

In prior work, we have reported that FEMA and the WYO insurance 

companies settled the unprecedented number of NFIP claims after 

Hurricane Katrina reasonably quickly, reporting that over 95 percent of 

Gulf Coast claims for damage from Hurricane Katrina followed closely by 

Hurricane Rita were settled in May 2006, about 9 months after the storms.10

History and Goals of the 

WYO Program 

Since its inception, the NFIP has relied to a large extent on the private 

insurance industry to sell and service policies, as Congress envisioned 

when it authorized the program in 1968. From 1969 through 1977, NFIP 

was operated under Part A of the National Flood Insurance Act (the Act), 

meaning that private insurers assumed a portion of the risk of financial

loss.11 In order to implement the program, the Department of Housing and 

Urban Development, the agency that administered the NFIP at that time, 

 10See GAO, National Flood Insurance Program: New Processes Aided Hurricane Katrina

Claims Handling, but FEMA’s Oversight Should Be Improved, GAO-07-169 (Washington,

D.C.: Dec. 15, 2006). 

1142 U.S.C. §§ 4051-4056. 

Page 11 GAO-07-1078 National Flood Insurance Program 
entered into an agreement with a consortium of private insurers known as 

the National Flood Insurers Association. Under this agreement, the 

department reimbursed the association for operating costs, and because

the association was a risk-sharing insurer, it received an additional annual

operating allowance equal to 5 percent of policyholder premiums. In 1977, 

in part as a result of disagreements on issues of financial control between 

the private insurers and the department, the relationship ended. 

Since 1978, NFIP has operated under Part B of the Act, meaning that the 

federal government bears the entire risk of loss.12 Because insurance 

companies operating under Part B, such as WYO companies, are not risksharing insurers, they are paid only for operating costs. The FEMA 

director is to establish a current schedule of operating costs by negotiating 

with representatives of the insurance industry. Under the Act, operating

costs include four components: (1) expense reimbursements covering the 

direct, actual, and necessary expenses incurred in connection with selling 

and servicing flood insurance coverage; (2) reasonable compensation 

payable for selling and servicing flood insurance coverage, or

commissions or service fees paid to producers; (3) loss adjustment 

expenses; and (4) other direct, actual, and necessary expenses that FEMA 

finds are incurred in connection with selling or servicing flood insurance 

coverage.13

In 1983, FEMA, still operating the NFIP under Part B, established the WYO 

program to obtain more industry involvement in the NFIP. According to 

FEMA, the goals of the WYO program are to increase the NFIP policy base 

and the geographic distribution of policies, improve service to NFIP 

policyholders through the infusion of insurance industry knowledge, and 

provide the insurance industry with direct operating experience with flood 

insurance. Over the years, insurance company participation has grown and 

the WYO program has assumed a larger share of the total NFIP policies in 

force. During the first year of the WYO arrangement, 48 insurance 

companies agreed to participate. In 1986, WYO insurance companies 

administered about 50 percent of a little over 2 million policies in force. In 

February 2007, WYO insurance companies administered about 96 percent 

of the about 5.4 million policies in force at that time. 

 1242 U.S.C. §§ 4071-4072. 

1342 U.S.C. § 4018(b)(1). 

Page 12 GAO-07-1078 National Flood Insurance Program 
A private insurer becomes a WYO company by entering into an agreement

with FEMA known as the Financial Assistance/Subsidy Arrangement. 

Under the arrangement, private insurers agree to issue flood policies in 

their own name. In addition, the WYO companies adjust flood claims as 

well as settle, pay, and defend all claims arising from the flood policies. To 

enter into a WYO arrangement with the NFIP, private insurers must meet 

FEMA’s established criteria.14 Factors FEMA considers in determining 

whether companies are accepted into the WYO program include their 

experience in property and casualty insurance lines, standing with state 

insurance departments, and the ability to meet NFIP reporting 

requirements to adequately sell and service flood insurance policies. 

Roles of WYO Companies 

and Other Key Participants 

in the NFIP 

Each year, FEMA is required to publish in the Federal Register the terms 

for participation in the WYO program, including amounts WYO insurance 

companies will be paid for expenses. Companies that agree to participate 

in the program sign a financial assistance/subsidy arrangement and are to

comply with the provisions of FEMA’s WYO Financial Control Plan, which 

outlines WYO insurance companies’ responsibilities for program 

operations including underwriting, claims adjustments, cash management, 

and financial reporting, as well as FEMA’s responsibilities for management 

and oversight. 

Selling policies. Insurance agents under contract to one or more WYO 

insurance companies are the main point of contact for most policyholders

to purchase an NFIP policy, seek information on coverage, or file a claim. 

Based on information the insurance agents submit, the WYO insurance 

companies issue policies, collect premiums from policyholders, deduct an 

allowance for expenses from the premium, and remit the balance to the 

National Flood Insurance Fund. In some cases, insurance companies hire 

subcontractors—flood insurance vendors—to conduct some or all of the 

day-to-day processing and management of flood insurance policies. 

Adjusting claims. Insurance companies work with certified flood 

adjusters to settle NFIP claims. When flood losses occur, policyholders 

report them to their insurance agent, who notifies the WYO insurance 

company. The WYO insurance company assigns a flood adjuster to assess 

damages. Flood adjusters may be independent or employed by an 

insurance or adjusting company. These adjusters are responsible for 

assessing damage, estimating losses, and submitting required reports, 

 1444 C.F.R. § 62.24. 

Page 13 GAO-07-1078 National Flood Insurance Program 
work sheets, and photographs to the WYO insurance company, where the 

claim is reviewed and, if approved, processed for payment. WYO insurance 

companies are then reimbursed by FEMA from the National Flood 

Insurance Fund for the amount of the claims and expenses paid. Claims 

amounts may be adjusted after the initial settlement is paid if claimants 

submit documentation that some costs were higher than estimated. 

FEMA Management and Oversight. About 68 FEMA employees, assisted 

by about 170 contractor employees manage and oversee the NFIP and the 

National Flood Insurance Fund into which premiums are deposited and 

claims and expenses paid. Their management responsibilities include 

establishing and updating NFIP regulations, analyzing data to actuarially

determine flood insurance rates, and offering training to insurance agents 

and adjusters. In addition, FEMA and its program contractor are 

responsible for monitoring and overseeing the quality of the performance 

of the WYO insurance companies to assure that the NFIP is administered 

properly. Figure 3 provides an overview of the WYO companies’ and 

others’ participation in the NFIP. 

Page 14 GAO-07-1078 National Flood Insurance Program 
Figure 3: Key Participants in the NFIP WYO Program 

- Purchases NFIP policy

- Seeks information on coverage

- Files claim after flood event

- Underwrites policy

- Collects premiums

- Processes claims

- Sends in flood adjuster

- Manages the National Flood Insurance Fund

 - Pays write-your-own companies based on a

 schedule of operating costs

 - Receives premium deposits

- Manages, regulates, and oversees NFIP

- Assesses damage

- Estimates losses

- Submits required reports 

to insurance companies

- Under contract to sell NFIP policies

 in the name of one or more 

write-your-own insurance companies

Homeowner

Write-your-own insurance 

company/flood insurance vendor

FEMA and its

program contractor

Flood adjuster

Flood Event

Insurance agent

Source: GAO analysis of FEMA data, clipart (Art Explosion).

Homeowner

Page 15 GAO-07-1078 National Flood Insurance Program 
FEMA’s payments to WYO insurance companies for operating costs 

ranged from more than a third to almost two-thirds of the total premiums 

paid by policyholders to the NFIP for fiscal years 2004 through 2006. 

During the 3-year period from fiscal year 2004 through 2006, FEMA’s 

payments to WYO insurance companies ranged from $619.2 million to 

$1.6 billion in current dollars that were not adjusted for inflation. FEMA 

establishes a schedule of operating costs for WYO insurance companies 

participating in the NFIP based on industry averages for operating 

expenses for other lines of insurance, such as homeowners, commercial 

and fire; past practices; and discussions with WYO insurance company 

participants and other insurance industry representatives. FEMA 

negotiated these payment methodologies with insurance industry 

representatives when it established the WYO program in 1983. While 

FEMA has periodically adjusted payment amounts since 1983, the 

underlying methodologies it uses for determining them have not 

significantly changed. FEMA pays WYO companies in two main categories 

(1) for selling and servicing insurance policies and (2) adjusting and 

processing policyholders’ claims after a flood event occurs. Any portion of

the premium revenues retained by the WYO insurance companies that are 

not used to cover expenses may be retained as profit. Because the WYO 

insurance companies bear no risk for NFIP losses, the payments they 

receive from FEMA are for work incurred in selling and servicing policies 

and adjusting claims. 

As shown in table 1, in the last 3 fiscal years, payments to WYO insurance 

companies have consumed from over a third to almost two-thirds of the 

total premiums paid by policyholders to the NFIP. In fiscal years 2005 and

2006, payments were larger than for fiscal year 2004 because the WYO 

insurance companies received payments in these years for settling the 

unprecedented number and amount of claims for damages resulting from 

flood events including Hurricanes Charley, Ivan, Frances, and Jeanne in 

Florida and other East Coast and Gulf Coast states in 2004 and Hurricanes 

Katrina, Rita, Wilma, and other flood events in 2005. 

Payments to WYO 

Insurance Companies 

Comprised Up to 

Almost Two-Thirds of 

Total Premium 

Revenue in Recent 

Years Based on 

Payment 

Methodologies 

Established in 1983 

Overall Payments to WYO 

Insurance Companies 

Page 16 GAO-07-1078 National Flood Insurance Program 
Table 1: Payments to WYO Insurance Companies Received for Services Rendered

to the NFIP (Fiscal Years 2004-2006) 

Dollars in millions 

Fiscal 

year 

Premium revenue

received by the 

NFIP Fund

Payments to WYO

insurance companies 

for services rendered

Percent of premium 

revenue paid for 

WYO insurance 

company services

2004 $1,772.8 $619.2 34.9

2005 1,943.6 984.5 50.7

2006 2,439.9 1,583.5 64.9

Source: GAO analysis of FEMA data. 

Note: Dollars are not adjusted for inflation. 

Selling and Servicing NFIP 

Policies 

WYO insurance companies retain premium revenues for selling and 

servicing NFIP policies based on three different calculations: (1) a flat 

15 percentage allowance for insurance agent sales commissions; (2) an 

average of industry operating expenses for other lines of insurance to 

determine the amount for operating expenses associated with processing 

and servicing insurance policies, which historically also averages to about

15 percent; and (3) incentive bonuses to WYO companies of up to 

2 percent of the premiums generated by selling and servicing flood 

insurance policies. Table 2 summarizes the methods FEMA uses to 

calculate payments to WYO companies for selling and servicing flood 

insurance policies and recent payment amounts. 

Page 17 GAO-07-1078 National Flood Insurance Program 
Table 2: Methodology for Calculating Payments to WYO Insurance Companies for Selling and Servicing NFIP Policies and 

Actual Payments Made, Fiscal Years 2004-2006 

Dollars in millions 

Actual payments Type of payment 

calculationa

Calculation methodology

Calculation result 

(actual or estimated) FY04 FY05 FY06

(1) Insurance agent 

sales commissions 

Percentage amount established in the annual

financial assistance/subsidy arrangement 

between FEMA and participating insurance 

companies 

15% of premium revenue 

retained 

(2) Operating 

expensesb

Based on a 5-year rolling average of direct 

operating costs as reported by the industry for 

other types of property and casualty insurance 

About 15% percent of 

premium revenue 

retained 

$524.9 $634.6 $687.3

(3) Incentive bonus Awarded to companies that achieve 2 to 5 

percent or more growth in the number of NFIP 

policies they have in force 

0.5% -2% of premium 

revenue retained 

31.6 21.4 44.5

Source: GAO analysis of FEMA data. 

Note: Dollars are not adjusted for inflation. In addition to these major categories of payments related

to selling and servicing policies that WYO insurance companies receive for services to the NFIP, 

FEMA officials noted two other smaller categories of payments that are available. First, WYO 

insurance companies may receive special allocations if they need to hire engineers to do studies 

necessary to underwrite policies or adjust claims. Total payments are about $2 million a year. 

Second, in future years, FEMA has proposed to pay WYO insurance companies 1⁄4 of 1 percent in 

additional premium revenues for expenses they incur to comply with provisions of the Flood 

Insurance Reform Act of 2004. The proposal is currently under review by DHS. If approved, it could 

be effective in fiscal year 2008. The 2004 Act mandated that NFIP policyholders receive additional 

informational materials explaining their coverage, which resulted in additional expenses to the WYO 

insurance companies for postage and mailings, among other items. Total payments on premium 

revenues of $2 billion would be about $5 million. 

a

FEMA did not provide payment information for insurance agent sales commissions and operating 

expenses as separate line items. 

b

Includes state premium tax, which FEMA officials said averages 2 percent of written premiums. 

WYO insurance companies retain a flat fee of 15 percent of premium 

revenues for agent commissions. The WYO insurance companies, 

however, determine the actual amount of commission they pay to agents.

The amount varies from one WYO insurance company to another and may 

be more or less than 15 percent. For example, one WYO insurance 

company flood program manager said that agents for his company receive 

a commission of 15 percent of the policy amount and may also receive 

other incentives during special flood marketing campaigns. Another flood

program manager said that her company’s agents received a commission 

that was larger than 15 percent of the policy amount. In the insurance 

industry, many independent agents are paid by commission only, whereas 

sales workers who are employees of an agency or an insurance carrier 

may be paid in one of three ways—salary only, salary plus commission, or

Selling and Servicing Policies: 

Agent Commissions 

Page 18 GAO-07-1078 National Flood Insurance Program 
salary plus bonus. In general, commissions are the most common form of 

compensation, especially for experienced agents.15

The amount of work involved in selling and servicing NFIP policies varies 

based on the flood risk of the insured property, according to a 

representative of the NAIC. For example, the representative said that NFIP 

policy sales for properties located in special flood hazard areas require the 

greatest amount of work because of the need to develop information on 

the elevation of the property, take photographs, and create other 

documentation that is required to determine the premium amount. They 

said that policy sales and renewals that require lesser amounts of work 

include (1) renewals where information has not changed; (2) sales of 

policies on properties that were built before NFIP floodplain management 

standards went into effect (because they qualify for subsidized premiums 

and do not require extensive documentation to determine flood risk); and 

(3) sales of policies for properties that are not located in special flood

hazard areas (because they do not require extensive documentation to 

assess flood risk). 

In addition to the 15 percent allowance for agent commissions, WYO 

insurance companies retain about 15 percent of the premium revenues for 

ongoing operating expenses related to administering the NFIP and 

providing services to policyholders. This payment amount is based on an

annual agreement between FEMA and the WYO insurance companies. See 

appendix III for the percentage allowances FEMA authorized WYO 

insurance companies to retain for operating expenses incurred in selling 

and servicing NFIP policies for fiscal years 1984 to 2007. According to the 

agreement, the WYO insurance companies may withhold, as operating and 

administrative expenses (other than agent commissions), an amount equal 

to the average industry expenses ratios for A.M. Best Company’s 

Aggregates and Averages for the following five property coverages: Fire, 

Allied Lines, Farmowners Multiple Peril, Homeowners Multiple Peril, and 

Commercial Multiple Peril (non-liability portion).16 According to the 

Selling and Servicing Policies: 

Operating Expenses 

 15Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, 

2006-07 Edition, Insurance Sales Agents, on the Internet at

http://www.bls.gov/oco/ocos118.htm (visited Apr. 26, 2007). 

16A.M. Best is an insurance industry rating and information agency that compiles and 

publishes data submitted by insurance companies to their state regulatory authorities. 

Page 19 GAO-07-1078 National Flood Insurance Program 
agreement, this amount is to be increased by 1 percentage point to 

reimburse expenses “beyond regular property/casualty expenses.”17

The payment for administrative and operating expenses is intended to 

cover a variety of expenses WYO insurance companies incur in servicing 

NFIP policies. WYO insurance company managers said examples of 

expenses they incurred included fees for services of a vendor or 

subcontractor (if one is retained to handle all or part of the flood 

insurance business), payment of salaries and expenses for employees with 

full or part-time responsibilities for the NFIP work, payment of fees to 

independent public accounting firms to conduct biennial audits of 

financial systems for the NFIP, and payment of state taxes on the funds 

received from the NFIP. Other expenses reported by WYO insurance 

companies include costs of marketing NFIP policies, training agents to sell

and service NFIP policies, and creating or modifying computer and 

accounting systems to report financial and statistical information required 

by the NFIP. 

According to FEMA officials, the agency has used annual bonuses for 

WYO insurance companies since 199518 as an incentive to increase the 

number of NFIP policies in force. Under the bonus incentive program, 

FEMA provides WYO insurance companies with opportunities to earn 

additional percentages of premium revenue above the levels established 

annually if they increase the number of flood insurance policies they sell 

and service. FEMA officials said that they established bonus percentage 

amounts through discussions with WYO insurance company officials, 

noting that, as of May 2007, the NFIP had experienced 36 continuous 

months of policy growth.19 One official attributed the growth to “a new 

American consciousness” of the importance of having flood insurance in 

the aftermath of Hurricane Katrina and other major flood events in 2004 

and 2005. This growth in policies accounts for the recent parallel growth in 

bonuses. Table 3 provides information on how bonuses have been 

Selling and Servicing Policies: 

Bonuses 

 17Federal Emergency Management Agency, Federal Insurance Administration, Financial

Assistance/Subsidy Agreement (Washington, D.C.: Oct. 1, 2006). 

18FEMA also provided annual incentive bonuses in 1989-1991.

19In addition to the marketing incentive bonuses, FEMA helps WYO insurance companies

pay for their NFIP marketing efforts through the NFIP cooperative advertising program,

which provides WYO companies and insurance agents the opportunity to split their 

advertising costs for any approved flood insurance print or Yellow Pages display ads with 

the NFIP as well as the development of public relations and of collateral materials such as

brochures. 

Page 20 GAO-07-1078 National Flood Insurance Program 
awarded and distributed. As the table shows, most participating WYO 

insurance companies received bonus payments in each of the fiscal years, 

and in fiscal year 2006, 67 percent of the companies received the highest 

bonus amount of 2 percent of premium revenues. 

Table 3: Incentive Bonus Award Structure and Distribution to WYO Companies, Fiscal Years 2004-2006

Actual bonus payments 

(dollars in millions) 

Number and percentage of WYO 

companies receiving bonus Policy growth

level (%) 

Bonus level 

(% of all 

premiums) FY04 FY05 FY06 FY04 FY05 FY06

<2.0 0 0 0 0 22 22% 37 40% 21 24%

2.0 0.5 0 $1.63 $0.023 3 3% 4 4% 1 1%

3.0 1.0 $0.48 3.04 0.104 4 4% 7 8% 2 2%

4.0 1.5 2.07 6.02 2.4 26 26% 6 7% 5 6%

5.0 2.0 29.04 10.72 42.1 44 44% 39 40% 59 67%

Total $31.58 $21.42 $44.5 99 99% 93 100% 88 100%

Source: GAO analysis of FEMA data. 

Note: The number of insurance companies participating in the WYO program fluctuates; numbers for 

ends of fiscal years are reported. Dollars are not adjusted for inflation. Percentages within each fiscal

year do not total 100% due to rounding. WYO companies that achieved policy growth of less than 

2 percent for any fiscal year were not eligible to receive bonuses. For 2004, FEMA officials advised 

that bonuses were based on overall growth and retention; therefore, although three companies 

achieved overall growth of 2.0 to 3.0 percent, they were not awarded bonuses. 

FEMA officials said that the methodologies they use for paying WYO 

companies for selling and servicing flood insurance are fair for both the 

government and the insurance industry. The officials noted that because 

the methodologies approximate the expenses incurred for insurance 

policy sales and servicing on an industrywide basis, they result in fair 

compensation for the WYO insurance companies. According to FEMA 

officials, many of the traditional operating costs associated with other 

lines of insurance are also incurred in selling and servicing flood insurance 

for the NFIP (i.e., commissions to agents, staff salaries, taxes, and building 

and equipment costs). Moreover, FEMA officials considered the payment 

of the same percentage of premium revenue to WYO insurance companies 

for more and less time-consuming sales and renewals to be a reasonable 

approach because it results in a reasonable overall compensation rate for 

the services the companies perform. They said that because the method 

for paying companies to sell and service policies has worked well over the 

years, FEMA has not deemed it necessary to significantly change its 

While FEMA Officials Consider 

WYO Payments for Selling and 

Servicing Policies to Be Fair, 

Insurance Industry Stakeholder 

Views Were Mixed 

Page 21 GAO-07-1078 National Flood Insurance Program 
approach since it was put into place at the inception of the WYO program 

in 1983.20

Of the five WYO companies we interviewed (including four of the five 

largest participating in the NFIP), views on the sufficiency of FEMA’s 

payment structure were mixed. Three WYO company officials stated that 

the expense percentage was generally sufficient, while two stated that it

was too low. In addition, one NAIC representative we interviewed said 

that the methodology was generally fair to the insurance companies and 

taxpayers, and another noted that expense allowance percentages are 

probably too high for some renewals and too low for new business but 

overall work out to a reasonable amount of compensation. 

After Flood Losses, FEMA 

Pays WYO Insurance 

Companies for Adjusting 

Claims and Providing 

Claims Processing 

Services 

In addition to paying WYO companies for selling and servicing NFIP flood 

insurance policies, FEMA also provides payments after a flood loss occurs. 

WYO companies are paid both for adjusting claims and for processing 

claims and providing certain claims-related services, such as setting up 

temporary flood insurance claims processing centers. Table 4 provides 

information on the methodologies FEMA uses to calculate these payments

and recent payment amounts. 

 20FEMA has never relied on actual flood insurance expense data to determine operating 

costs. However, in 1998 to 1999, FEMA reviewed its methodology for paying WYO 

insurance companies and, as a result, slightly modified the way in which it calculated 

payments for selling and servicing flood insurance policies based on average expenses of 

other lines of property and casualty insurance. Specifically, FEMA began using direct, as

opposed to net, expense information for the property and casualty insurance lines, 

meaning that FEMA no longer reimbursed WYO insurance companies for reinsurance

expenses, which are not relevant for flood insurance because the federal government

through the Treasury is ultimately responsible for program losses that exceed program

funds. As a result, FEMA reduced the operating expense allowance by one percent. See 

64 Fed. Reg. 27,705 (May 21, 1999). However, 2 years later, FEMA determined that the

operating expense allowance should be increased by about 1 percent for expenses beyond

regular property/casualty expenses, effectively negating the reduction made in 1999. 

See 66 Fed. Reg. 40,916 (Aug. 6, 2001). 

Page 22 GAO-07-1078 National Flood Insurance Program 
Table 4: Methodology for Calculating Payments to WYO Insurance Companies for Adjusting and Processing Claims after a 

Flood-Loss Event, and Actual Payments Made, Fiscal Years 2004-2006 

Dollars in millions 

Actual payments Type of payment 

calculation Calculation methodology

Calculation result 

(actual or estimated) FY04 FY05 FY06

(1) Claims 

adjustments 

Dollar or percentage of incurred 

loss based on adjuster fee schedule 

Ranges from $60 to $1,250 in flat 

fees for claims up to $50,000 

Fees for claims above $50,000, 

fees range from 2.1% to 3% of the 

claims settlement amount. 

$32.4 $97.2 $466.5

(2) Claims 

processing 

Based on actual incurred loss 3.3% per incurred loss 30.3 231.3 385.1 

Total $62.7 $328.5 $851.6

Source: FEMA. 

Note: Dollars are not adjusted for inflation. WYO insurance companies also process claims that fall

into other categories, such as “erroneous assignment” or “closed without payment” and receive fees

of $60 and $225, respectively. For claims of $50,000-$100,000, the fee equals 3%; for claims up to 

$250,000, the fee is 2.3% with a $3,000 minimum; and for claims above $250,000, the fee is 2.1%

with a minimum of $5,750. 

FEMA pays WYO insurance companies for adjuster fees based on a fee 

schedule that FEMA periodically negotiates with WYO insurance company 

representatives. Using the fee schedule, FEMA, through the WYO 

insurance companies, pays adjuster fees based on the amount of each

claim settled, with higher fees for larger claims settlement amounts. While 

some WYO insurance companies use adjusters who are company 

employees, other WYO insurance companies hire and pay claims adjusting 

firms that employ their own workforces. These adjusting firms may keep a 

percentage of the fee for expenses and profit and pay a portion to 

independent adjusters they engage. For example, while one adjusting firm 

we visited paid independent adjusters 40 percent of the amount on the 

adjuster fee schedule, FEMA officials said that independent adjusters 

typically received 70 percent of the amount on the adjuster fee schedule. 

Claims Adjustment Fees 

According to FEMA’s director for NFIP claims, the adjuster fee schedule 

system is based on fee schedules used by independent adjusting firms for 

claims on other lines of insurance (i.e., homeowners).21 According to the 

 21Like other WYO payment agreements, this payment method was implemented in 1983, 

about the same time other lines of insurance moved to implement fee schedules based on

claims settlement amounts rather than paying for claims adjustments based on the 

adjusters’ time and expense.

Page 23 GAO-07-1078 National Flood Insurance Program 
director, rates paid on the fee schedule have been adjusted periodically 

since 1983 and were last revised in 2004 based on discussions with the 

WYO insurance companies and independent adjusting firms.22 Table 5 

shows excerpts from the adjuster fee schedule effective as of May 2007 for 

claims with loss dates of September 2004 and later. 

Table 5: Excepts from the Adjuster Fee Schedule 

Claim range Fee 

Closed without payment $225 

$225.01 to 1,000 425 

$2,500.01 to 5,000 500 

$5,000.01 to 7,500 575 

$7,500.01 to 10,000 650 

$10,000.01 to 15,000 750 

$15,000.01 to 25,000 850 

$25,000.01 to 35,000 1,000 

$35,000.01 to $50,000 1,250 

$50,000.01 to $100,000 3 percent of the loss settlement amount 

$100,000.01 to 250,000 2.3 percent of the loss settlement amount 

but not less than $3,000 

$250,000.01 and up 2.1 percent of the loss settlement amount 

but not less than $5,750 

Source: FEMA. 

Note: Based on gross loss. 

After a flood loss, in addition to claims adjustment payments, FEMA pays 

WYO insurance companies for processing claims at a rate of 3.3 percent of

the flood insurance property settlement. According to FEMA officials, this

allowance is provided to WYO insurance companies to set up operations 

to process claims in flood-damaged areas. For example, WYO insurance 

companies may set up disaster recovery centers to organize their claims 

processing efforts on behalf of the NFIP and special telephone hotlines to

provide service, and pay travel expenses for employees and salaries of 

temporary workers to staff recovery centers. According to FEMA officials, 

the rate of payment for these expenses was initially determined by FEMA 

Expense Payment for Claims 

Processing Activities 

 22In addition, FEMA authorized payments of $750 per expedited claims adjustment, a

process that did not require site visits by certified flood claims adjusters, to settle about 

17,200 claims for damage from Hurricanes Katrina and Rita in 2005.

Page 24 GAO-07-1078 National Flood Insurance Program 
based on data on expenses incurred to adjust losses for other lines of 

insurance provided by A.M. Best, the insurance industry rating and 

information agency. However, during the 1980s, the insurance industry 

changed its requirements for reporting expenses incurred for loss 

adjustments; therefore, comparison information for other lines of 

insurance was no longer available, according to a FEMA official. Since that 

time, the official said that FEMA has not changed the claims expense 

allowance percentage because of discussions with representatives of the

insurance industry who consider the percentage to be reasonable. 

The views of the five WYO insurance company managers we interviewed 

were mixed on whether the 3.3 percent claims adjustment expense 

allowance FEMA pays is sufficient in relation to the costs they incur. One 

WYO insurance company manager thought the expense percentage was 

sufficient. Three WYO company managers said that the expense 

percentage was generally reasonable in catastrophic loss years but not in 

average loss years, and another WYO insurance company manager said the 

expense percentage was reasonable in noncatastrophic loss years but not 

in catastrophic loss years when prices charged by adjusters for their 

services increase and resources are not as readily available to manage 

claims adjustment operations. NAIC representatives said that they were 

not able to comment on whether the amount paid was generally 

reasonable for the insurance companies and taxpayers because they did 

not have data necessary to form an opinion. 

Views Mixed on the Sufficiency 

of Payments for Post-Flood 

Activities 

A senior FEMA official said that while FEMA has discussed the 

reasonableness of the payments for claims processing expenses with 

representatives of the WYO insurance companies, FEMA has not, since 

1983, assessed the amount of the payments based on either expenses 

incurred by the WYO companies for processing of NFIP claims or actual 

costs incurred by insurance companies for processing claims on other 

lines of insurance. The official said that some consideration was being 

given to capping the amount of the claims expense allowance paid in 

catastrophic loss years. The official said that a draft proposed rule is being 

discussed with WYO insurance company officials and action could be 

taken as early as fiscal year 2008. 

Page 25 GAO-07-1078 National Flood Insurance Program 
FEMA’s methodologies for determining WYO’s operating costs, rooted in 

policies established about 25 years ago, cannot provide assurance that 

payments are based on reasonable estimates of actual expenses because 

actual expenses incurred by the companies for their services to the NFIP 

are not considered. It is important that FEMA be able to rely on a 

methodologically sound approach for making decisions about NFIP 

operating costs, given both the program’s growth and rise in payouts in 

recent years. Although FEMA has the authority to collect expenses 

information and FEMA officials said that they have considered alternative

methodologies for paying WYO insurance companies, the officials raised 

concerns about collecting expense information from WYO insurance 

companies. Nevertheless, there is a precedent for doing so since two other 

public-private insurance partnerships with similarities to the WYO 

program use information on the actual costs incurred by participating 

insurance companies as one basis for determining how much to pay for 

services. 

While the WYO program has operated without interruption since 1983 in

both catastrophic and noncatastrophic flood years, FEMA has not 

determined whether payments it makes reasonably reflect the actual 

expenses WYO insurance companies have incurred in selling and servicing 

NFIP policies and settling claims for flood losses. The methodologies 

FEMA currently uses to determine payment amounts for the WYO 

insurance companies for services rendered do not meet the federal 

internal control standard that agencies be held accountable for, among 

other things, stewardship of government resources. For example, as noted 

earlier, FEMA allows the WYO insurance companies to retain a percentage

of premium revenue it collects based on average expenses for five 

property/casualty lines of insurance; this amount is increased by 1 

percentage point to reimburse expenses for the NFIP beyond regular 

property/casualty expenses. However, without obtaining and considering 

audited data on the actual costs incurred by the WYO companies, FEMA 

has no assurance that the additional 1 percentage point—about $20 million 

annually programwide—is an accurate reflection of the expenses WYO 

companies actually incur beyond regular property/casualty expenses. Nor 

can FEMA determine, based on current payment methodologies, how 

WYO insurance company costs might have changed over time because its 

payment approach is rooted in policies established in 1983, when the WYO 

program began. For example, the payment formula FEMA used to set the 

3.3 percent payment rate for claims processing expenses incurred by WYO 

insurance companies has been in place since the program’s inception, and

FEMA has no basis, other than discussion with WYO insurance company 

FEMA’s Long-standing 

Approach for 

Establishing a 

Schedule of Operating 

Costs Cannot Ensure 

That WYO Insurance 

Company Payments 

Are Based on 

Reasonable Estimates 

of Actual Expenses 

FEMA’s Methodologies 

Cannot Ensure That the 

Schedule of Operating 

Costs Is Based on 

Reasonable Estimates of 

Actual Expenses 

Page 26 GAO-07-1078 National Flood Insurance Program 
officials, for determining that the 3.3 percent claims processing payment is 

a reasonable estimate of expenses incurred. 

It is important that FEMA be able to rely on a methodologically sound 

approach for making decisions about NFIP operating costs, given both the 

program’s growth and rise in payouts. As shown earlier in figure 1, 

participation in the NFIP has steadily increased over time from 

approximately 2 million to over 5 million policies in force. Annual 

premium revenue, which is the basis for calculating payments to WYO 

insurance companies for selling and servicing policies, has increased as 

well, from $385 million in 1983 to more than $2 billion in 2007. And costs 

of claims settlements have trended upward, as the costs of labor and 

materials to repair flood-damaged properties have increased, resulting in 

larger payment amounts to WYO insurance companies for adjusting 

claims. As a result of the unprecedented number and cost of flood 

insurance claims after Hurricane Katrina, the amount FEMA paid the WYO 

insurance companies based on its formula for claims processing (i.e., 

setting up temporary flood insurance claims processing centers) was 

$385.1 million in fiscal year 2005—a more than tenfold increase from the 

$30.3 million, not adjusted for inflation, paid for such expenses in fiscal 

year 2004. 

FEMA officials said that they are in the process of discussing with WYO 

insurance company officials a proposed cap on the amount WYO 

insurance companies will be paid for claims processing expenses in future 

catastrophic loss years that could become effective in fiscal year 2008, as 

noted above. FEMA officials also said that they believed the insurance 

companies participating in the WYO program generally had lower 

expenses than other companies that choose not to participate in the WYO 

program. They cited their analysis of 2004 operating expenses, which 

compared the expenses for homeowner policies for insurance companies 

that participated in the WYO program to companies that did not 

participate and found that companies that did not participate in the WYO 

program generally reported higher expenses. Nevertheless, because FEMA 

does not collect actual data from WYO insurance companies specific to 

their flood insurance expenses, it cannot ensure payments are based on 

reasonable estimates of actual flood insurance expenses. 

FEMA officials said that they have considered methodologies other than 

the current approach for paying WYO insurance companies, including 

having the companies submit information on their actual expenses for 

reimbursement for services rendered to the NFIP. However, they said that

such an approach could create a number of additional challenges that 

Page 27 GAO-07-1078 National Flood Insurance Program 
might have a negative impact on the program. For example, because the 

costs of doing business vary from one WYO insurance company to 

another, according to the business models they have developed for 

carrying out their services to the NFIP and the amount of their flood 

insurance business, the NFIP would, in the agency’s view, have to pay

different companies at different levels, which could result in higher FEMA 

administrative costs and could also fail to reward WYO insurance 

companies with the most efficient operations. The officials also said that 

compensation based on actual expenses could also result in inefficient 

companies entering the WYO program because there is no incentive for 

them to control expenses. In addition, FEMA officials stated that they 

would likely have to hire additional staff and provide resources to review 

and validate WYO expense data, further increasing program costs. 

However, FEMA could choose, for example, to use data on actual 

expenses to establish payment rates based on an average of expenses 

WYO insurance companies incur, similar to its current approach. Thus, 

WYO insurance companies would continue to have an incentive to 

perform efficiently. 

FEMA Has Legal Authority 

to Collect Data on Actual 

WYO Expenses to 

Determine If Payments Are 

Based on Reasonable 

Estimates of Expenses, but 

Officials Cited Concerns 

about Potential 

Implications 

Under the National Flood Insurance Act of 1968, insurance companies 

choosing to participate in the WYO program must keep such records as 

FEMA prescribes and provide access to these records for purpose of audit 

and examination. Although it has authority to do so, FEMA does not 

collect data on actual WYO flood insurance expenses that could provide a 

basis for ensuring that the WYO schedule of operating costs is based on a 

reasonable estimate of expenses. FEMA’s reluctance to impose additional 

cost accounting requirements on WYO insurance companies is based on 

concerns that the number of companies choosing to participate in the 

WYO program would decline if FEMA did so. 

The National Flood Insurance Act of 1968 mandated that FEMA negotiate 

with representatives of the insurance industry to establish a current 

schedule of operating costs.23 Operating costs include: 

• expense reimbursements covering the direct, actual, and necessary 

expenses incurred in connection with selling and servicing flood 

insurance coverage; 

 2342 USC § 4018(a). 

Page 28 GAO-07-1078 National Flood Insurance Program 
• reasonable compensation payable for selling and servicing flood 

insurance coverage; 

• loss adjustment expenses; and 

• other direct, actual, and necessary expenses incurred in connection 

with selling or servicing flood insurance coverage. 

In addition, the act provides FEMA with broad audit and access authority 

to the records of insurance companies choosing to participate in the WYO 

program. In particular, WYO insurance companies must “keep such 

records as the [FEMA] Director shall prescribe, including records which 

fully disclose the total costs of the program undertaken or the services 

being rendered, and such other records as will facilitate an effective 

audit.”24 Any WYO records pertinent to program costs and services 

rendered are subject to audit and examination by FEMA (and GAO).25

While these provisions provide a legal basis for FEMA to collect cost data

from WYO insurance companies to ensure that the schedule of operating 

costs reasonably reflects actual WYO insurance company expenses, FEMA 

officials expressed concerns that new cost accounting requirements would 

drive insurance companies out of the WYO program. 

Under its agreement with participating WYO insurance companies, FEMA 

can request that the companies provide “a true and correct copy of the 

Company’s Fire and Casualty Annual Statement, and Insurance Expense 

Exhibit,” which the companies are required to file with their respective 

state insurance authorities. The Insurance Expense Exhibit provides a 

statutory allocation of income to lines of business, thereby measuring the

underlying profitability of the insurance operations. According to NAIC 

officials, all revenues and expenditures, whether or not they are 

associated with particular policies, are allocated to lines of business, 

including flood insurance, and various sets of operating returns are 

calculated in the Exhibit, so that profitability by line of business may be 

measured. They said that WYO companies allocate costs related to their 

flood insurance business based on a reporting requirement established by 

the NAIC in 1997 and that companies determine their own allocation 

methods, which according to NAIC procedures, must be “reasonable.” 

 2442 U.S.C. at § 4084(a). 

2542 U.S.C. at § 4084(b). The statutory audit and access rights provided under this section 

are codified in regulation as part of the Financial Assistance/Subsidy Agreement between

FEMA and all participating WYO insurance companies. 44 C.F.R. pt. 62, app. A, art. XIV. 

Page 29 GAO-07-1078 National Flood Insurance Program 
FEMA officials said the requirement for insurance companies to provide 

information on costs allocated to their flood insurance business was 

established at FEMA’s request, and FEMA has reviewed the data annually

since 2004. However, the officials said they could not use the information 

to help determine the reasonableness of payments to WYO insurance 

companies for the services they perform for the NFIP because the 

methods WYO companies use to report their flood insurance-related 

expenses in the Insurance Expense Exhibit vary by company. They said 

that FEMA has not required that WYO insurance companies report their 

flood- related expenses separately because of their reluctance to increase 

federal reporting requirements on their WYO partners in the NFIP. 

FEMA officials expressed concern that the number of companies that 

choose to participate in the WYO program would decline dramatically if 

additional cost accounting requirements were established for them. The 

officials said that potential impacts of less private-sector participation 

include a reduced ability to respond quickly to catastrophic flood events 

and more difficulty for policyholders in locating agents to sell and service

NFIP policies. That concern notwithstanding, however, more specific and

relevant information on actual expenses allocated by the WYO insurance 

companies to their flood insurance business could help FEMA determine 

the reasonableness of its expense estimates if the flood insurance data 

already maintained by participating WYO insurance companies were 

consistently reported. 

Based on the standards for internal control in the federal government, 

FEMA is responsible for implementing controls that serve as the first line 

of defense in safeguarding assets, preventing and detecting errors and 

fraud, and helping to achieve desired results through effective stewardship 

of public resources. Moreover, internal controls are integral to ensuring 

the reliability of financial reporting and the effectiveness and efficiency of

operations, including the use of resources. FEMA has not significantly 

changed the payment policies that are the foundation of the WYO program 

in more than 2 decades, and because FEMA cannot ensure that its 

approach to establishing a schedule of operating costs is based on a 

reasonable estimate of actual expenses, it has not effectively implemented 

these internal controls. A review of the WYO insurance companies’ 

operating costs would be prudent and timely. 

Page 30 GAO-07-1078 National Flood Insurance Program 
While FEMA has not elected to collect actual cost data from WYO 

companies, it has the legal authority to do so, as noted above, and there is

precedent within the federal government for doing so. Two public-private 

insurance partnerships similar to the NFIP’s arrangement with WYO 

insurance companies collect information on the actual costs incurred by 

participating insurance companies as a basis to help determine how much 

to pay for services. 

Other Federal Programs 

Collect Actual Cost Data to 

Help Determine Payments 

for Insurance Industry 

Services 

The first is the FCIC, which bears the risk for insuring agricultural crop 

values under the auspices of the U.S. Department of Agriculture’s Risk 

Management Agency.26 The FCIC protects farmers who participate in the 

program against financial losses caused by events such as droughts and 

other natural disasters. 

Like FEMA does for the NFIP, the Risk Management Agency pays 

insurance companies a percentage of premium revenue for expense 

allowances for services to the FCIC. Unlike the NFIP, however, beginning

in 1994, the FCIC began to require companies to submit detailed expense

reports in a consistent format following standard industry guidelines, 

including the NAIC guidelines for allocating expenses among lines of 

business. While the FCIC does not use these reports as a direct basis for 

reimbursing individual insurance companies, the actual expense 

information contained in the reports informs the agency’s methodology for 

establishing future reimbursement rates for expenses related to insurance 

services. FCIC requires that companies submit documentation of their 

expenses and uses this information to determine the appropriate 

percentage as a basis for compensation. This documentation is intended to 

provide a basis for program oversight to ensure that payments made to 

private insurance companies for their expenses in providing insurance 

services are reasonable—documentation that is currently lacking in 

the NFIP. 

One potential advantage that results from FCIC’s direct access to expense

data is that this information may be used to enhance program oversight. 

For example, in reviewing actual expense data submitted by the insurance 

companies participating in the FCIC in 1997, we found that some expenses 

 26In 2007, 16 private-sector insurance companies sold and serviced policies for the FCIC. 

The program insured crops valued at about $44.3 billion in fiscal year 2005, with about 

1.3 million policies in force.

Page 31 GAO-07-1078 National Flood Insurance Program 
reimbursed by FCIC were excessive.27 Among the expenses reported were 

those associated with profit-sharing bonuses and lobbying. In addition, 

even within the expense categories reasonably associated with the sale 

and service of crop insurance, we found expenses that appeared excessive 

for reimbursement under a taxpayer-supported program, suggesting an 

opportunity to further reduce future reimbursement rates. These expenses 

included agents’ commissions that exceeded the industry average, 

unnecessary travel-related expenses, and questionable entertainment 

activities. Currently, comparable oversight activities cannot be performed 

on NFIP’s WYO program participants because the data needed for such 

analysis have not been obtained. 

The second public-private partnership comparable to the NFIP is an entity

that participates in the flood insurance program, but not as a WYO 

insurance company. This entity is the NFIP Direct Servicing Agent—a 

FEMA contractor that sells, services, and adjusts claims on about 

4 percent of flood insurance policies that are not, for various reasons, 

handled through the WYO program.28 FEMA pays the NFIP Direct 

Servicing Agent for selling and servicing flood insurance and for adjusting 

and processing claims after a flood event through a competitively awarded 

contract at a fixed cost. The contractor has calculated its cost to sell and

service policies as well as adjust claims following a non-catastrophic event 

based on prior experience as a vendor for several WYO insurance 

companies. Based on these calculations, the contractor charges a flat price 

per policy that is not based on the premium amount. For example, a flood 

insurance policy with a $400 premium would cost the NFIP Direct 

Servicing Agent the same to service as a policy with $800 in premiums, 

based on a flat fee paid per policy per month. For catastrophic flood 

events, such as Hurricane Katrina, the NFIP Direct Servicing Agent 

 27See GAO, Crop Insurance: Opportunities Exist to Reduce Government Costs for

Private-Sector Delivery, RCED-97-70 (Washington, D.C.: April 1997). 

28The NFIP Direct Servicing Agent services all policies not covered by WYO insurance

companies. Among the reasons an NFIP policy would be serviced by the direct servicing 

agent are (1) the WYO insurance company that sold the policy withdrew from the WYO 

program or went out of business or (2) the policies are on a special class of properties that

have suffered repetitive losses that FEMA has chosen to administer through its servicing 

agent. The NFIP Servicing Agent does not pay state premium taxes that WYO insurance

companies must pay on flood insurance premiums. 

Page 32 GAO-07-1078 National Flood Insurance Program 
submits receipts to the NFIP and is reimbursed for expenses related to 

setting up a catastrophe center and hiring additional staff.29

While the approach used to compensate the NFIP Direct Servicing Agent

for its services illustrates that information on actual costs incurred can be 

developed by private sector entities participating in the NFIP, FEMA 

officials have cautioned that differences in compensation approaches are 

based on a different role for the contractor in the NFIP than that of the 

WYO insurance companies. While the WYO insurance companies are paid

on a percentage basis to provide incentives for them to increase the 

number of NFIP policies they have in force, the NFIP Direct Servicing 

Agent does not market the NFIP; rather, it services the specialized group

of policies it is assigned in its contract with FEMA. Nevertheless, the 

financial arrangement with the Direct Servicing Agent shows that cost 

information can be collected and is useful in determining reasonable 

payments. 

Although public-private partnerships for federal insurance programs such 

as these include considerations of actual expense information and FEMA 

has the legal authority to obtain such information from WYO insurance 

companies, FEMA’s current methodologies for determining payment 

amounts are not based on an assessment of actual expenses the WYO 

insurance companies incur and do not require that WYO insurance 

companies maintain or report their expenses. As a result, FEMA does not 

know whether the payments it makes to the WYO insurance companies 

reasonably reflect the expenses they incur in selling and servicing NFIP 

policies and establishing operations in flood-damaged areas. 

 29These activities are paid for through a Letter of Credit with the U.S. Treasury and the

Direct Servicing Agent is reimbursed for its actual expenses. 

Page 33 GAO-07-1078 National Flood Insurance Program 
Biennial financial statement audits—FEMA’s primary management control 

mechanism to provide assurances that it receives complete and accurate

financial management information from the WYO insurance companies—

were not performed on a consistent basis as required by regulation. 

FEMA’s regulations and the WYO Financial Control Plan require each

participating WYO insurance company to arrange for biennial financial 

audits that assess its financial statements for activities related to the NFIP; 

audit costs are covered by the expense allowance received from FEMA for 

selling and servicing policies. However, many insurance companies 

participating in the WYO program did not comply with the schedule. In 

addition, FEMA did not have a mechanism in place for tracking and 

reviewing the results of the biennial financial statement audits that were 

performed. Because the biennial financial statement audits were not 

consistently completed and reviewed, FEMA lacks assurance that it is 

making proper payments for the services of the WYO insurance companies

and that financial information is being properly presented. 

FEMA regulations as implemented through its WYO Financial Control Plan 

require each participating WYO insurance company to arrange for biennial

financial audits by independent CPA firms that assess its financial 

statements for activities and controls related to the NFIP.30 The biennial 

financial statement audits are intended to provide FEMA with an 

independent assessment of the quality of financial controls over activities 

related to WYO companies’ participation in the NFIP and the integrity of 

the financial data they report. Biennial financial statement audits provide 

assurance that WYO insurance companies report complete and accurate

information on their NFIP activities, which are necessary to ensure that 

payments made from the NFIP fund for services rendered are proper and 

in accordance with program requirements. The third-party financial audits 

are intended to reduce or eliminate the need for FEMA to conduct on-site 

Financial 

Management Controls 

Did Not Provide 

Assurance That 

Payments to WYO 

Insurance Companies 

Were Proper and in 

Accordance with 

Program 

Requirements 

FEMA Regulations and 

Guidance Require Biennial 

Financial Audits of WYO 

Insurance Companies to 

Assess the Quality of 

Financial Controls over 

NFIP-Related Activities 

 30The financial control requirements applicable to WYO insurance companies appear at 

44 C.F.R.§62.23(j) and 44 C.F.R. pt. 62, app. B, which incorporates by reference a separate

document, “The Write Your Own Program Financial Control Plan Requirements and

Procedures.” 

Page 34 GAO-07-1078 National Flood Insurance Program 
visits to WYO insurance companies to oversee their financial activities.31

The audits provide opinions and report on the fairness of the WYO 

insurance companies’ financial statements, the adequacy of internal 

controls, and the extent of the WYO insurance companies’ compliance 

with applicable laws and regulations. Some WYO insurance companies 

conduct in-house financial management operations while others 

subcontract with a flood insurance vendor, or subcontractor, to handle 

financial reporting requirements and operations. When a vendor is 

involved, WYO insurance companies that have contracted with the same 

vendor generally hire an independent CPA firm to audit the vendor’s 

financial operations and provide an opinion on the quality of the financial 

systems for all of the WYO insurance companies that subcontract with 

the vendor. 

Under FEMA regulation, WYO insurance companies are responsible for 

selecting CPA firms to conduct their audits in accordance with generally

accepted auditing standards and generally accepted government auditing

standards issued by the Comptroller General. The audits are to be funded

by the WYO companies from the expense allowance (about 15 percent of 

premium revenue) they receive for selling and servicing policies. 

FEMA has several other methods for managing and overseeing the quality 

of work performed by WYO insurance companies including monthly 

reconciliations and manual validation and recalculation of the amounts 

retained by the WYO insurance companies, reviews of the operations of 

the WYO insurance companies at least once every 3 years, and quality

assurance reinspection of a sample of claims adjusted after each flood 

event. Our review of these other methods of management and oversight 

determined that they did not provide direct information about the 

 31An exception to the requirement is allowed for WYO insurance companies that were 

audited by a CPA firm under contract with the FEMA or DHS Office of Inspector General 

(OIG) during the 2-year period. For those WYO insurance companies, biennial financial 

audits are required to cover only 1 year of the 2-year period. In March 2003, when FEMA 

became part of DHS, the DHS OIG assumed responsibility for financial audits of the NFIP. 

However, FEMA’s WYO Financial Control Plan was last revised in December 1999 and did 

not reflect the change in responsibility. FEMA provided two DHS OIG audit reports for the

NFIP--a 2002 audit that included tests of controls related to the financial activities of six 

WYO insurance companies and a 2004 audit that included tests of controls related to five 

WYO insurance companies. According to an official of the DHS OIG, in 2005, no official 

audit report was issued because the independent CPA firm that conducted the audit 

submitted the results late. Instead of issuing an audit report, the independent CPA firm 

provided a copy of the audit results to the NFIP. As of May 2007, the 2006 DHS OIG audit of 

the NFIP was still in process, according to the official. 

Page 35 GAO-07-1078 National Flood Insurance Program 
propriety and accuracy of payments made to the WYO insurance 

companies for their NFIP-related activities. In addition, when FEMA has 

concerns regarding the propriety of a WYO insurance company’s financial 

reporting, the agency may conduct audits “for cause.” However, according 

to NFIP officials, FEMA has not conducted any audits for cause during the 

7-year period we reviewed. 

Most WYO Insurance 

Companies Did Not Meet 

the Biennial Financial 

Statement Audit Schedule 

Required by FEMA 

As shown in figure 4, for biennial audits done during the period from fiscal 

year 2001 to 2006, the majority of participating WYO insurance companies 

did not comply with FEMA’s requirement for biennial audits of their 

financial operations to be conducted. The officials also said that 

34 additional WYO insurance companies were granted extensions by 

FEMA to complete their fiscal year 2005-2006 biennial financial statement 

audits by September 30, 2007. 

Page 36 GAO-07-1078 National Flood Insurance Program 
Figure 4: Biennial Financial Statement Audits of WYO Insurance Companies 

Completed from Fiscal Years 2001 to 2006

0

10

20

30

40

50

60

70

80

90

100

110

Fiscal year

WYO companies that had financial audits completed 

WYO companies that did not have financial audits completed

Source: GAO analysis of FEMA data.

98

58

40

66

37

72

35

103

107

2001-

2002

2003-

2004

2002-

2003

2005-

2006

94

89

5

Note: Numbers for participating WYO insurance companies are those at the end of fiscal years 2002, 

2003, 2004, and 2006. 

Thirty-nine of the 40 biennial financial statement audits that were 

completed for fiscal years 2001 to 2002 were the results of a review by one 

independent CPA firm at a vendor for the 39 WYO insurance companies. 

Similarly, 23 of the 37 biennial financial statement audits completed for 

fiscal years 2002 to 2003 and all 35 of the biennial financial statement 

audits that were completed for fiscal years 2003 to 2004 were the results of 

reviews of two vendors and resulting reports by two independent CPA 

firms. In these cases, the CPA firm visited a single flood insurance vendor

or subcontractor with which the audited WYO insurance companies 

subcontracted to handle aspects of their NFIP business. 

According to the Deputy Assistant Administrator for Insurance of FEMA’s 

Mitigation Division with responsibility for management and oversight of 

the NFIP, FEMA did not require all WYO insurance companies to meet the 

schedule for completing biennial financial statement audits during the 

period we reviewed because some companies were in the process of 

contracting with new vendors, or subcontractors, to do their financial

Page 37 GAO-07-1078 National Flood Insurance Program 
reporting so doing financial audits would have been particularly costly and

difficult. In addition, the Deputy Assistant Administrator said that FEMA 

had no indication that the WYO insurance companies that did not have 

biennial financial statement audits performed had any financial 

management weaknesses. Nonetheless, without having the biennial audits

conducted as required by regulation, FEMA lacks assurance that WYO 

insurance companies have financial systems in place to ensure that proper 

payments are made and controls are in place for the services of the WYO 

insurance companies. This assurance is necessary for FEMA to meet the 

internal control standard for federal government agencies that they have

reasonable assurance program objectives are being achieved and 

operations are effective and efficient. In addition, according to standards 

for internal controls within the federal government, such a control 

mechanism is important in agencies like FEMA where large amounts of 

data are processed; where audit techniques may be used to identify 

inefficiencies, waste, or abuse; and where managers should be able to 

promptly review and evaluate audit findings in order to identify 

opportunities for improvements. 

The Deputy Assistant Administrator also said that FEMA did not seek to 

recoup the portion of the allowance paid from the NFIP fund for biennial 

financial statement audits from the companies that did not have them 

performed. He said that reimbursement was not requested because the 

public-private partnership depends upon a level of cooperation without a 

constant exchange of dollars. 

Biennial Financial 

Statement Audits 

Identified One Company 

with Material Weaknesses 

and Some Noncompliance 

and Internal Control 

Weaknesses 

For the biennial financial statement audits that were completed from fiscal 

year 2001 through fiscal year 2006, the independent CPA firms identified 

material weaknesses in one instance and they identified some other 

internal control weaknesses and instances of noncompliance with 

financial reporting requirements.32 In all but one of the audit reports 

completed, the independent CPA firm issued an unqualified opinion that 

for the WYO insurance companies it audited, the financial statements 

fairly presented, in all material respects, the WYO program assets, 

 32The American Institute of Certified Public Accountants standard defines a material 

weakness as a reportable condition in which the design or operation of one or more of the

internal control components does not reduce to a relatively low level the risk that

misstatements caused by error or fraud in amounts that would be material in relation to the 

financial statements being audited may occur and not be detected within a timely period by 

employees in the normal course of performing their assigned functions. 

Page 38 GAO-07-1078 National Flood Insurance Program 
liabilities, and accumulated deficit. The various audit opinions also stated 

that the results of operations and cash flows of the companies’

participation in the WYO program for the 2-year periods audited 

conformed with generally accepted accounting principles in the United 

States. 

The audit in which material weaknesses were identified involved one WYO 

insurance company during fiscal years 2002 to 2003. The independent CPA 

firm that conducted the audit found significant deficiencies in design or 

operation of internal controls over financial reporting that could affect the 

company’s ability to record, process, summarize, and report financial data. 

Actions by the WYO insurance company to resolve the weaknesses 

identified were documented and included engaging a new vendor for its 

financial management functions. According to the Deputy Assistant 

Administrator, as of July 2007, the company did not participate in the 

WYO program. 

Among the instances in which internal control weaknesses and instances

of noncompliance were identified, a CPA firm noted in its fiscal year 2001 

to 2002 audit report that it considered a vendor’s lack of internal control 

procedures over its financial reporting to be a significant deficiency that 

could adversely affect its ability to record, process, summarize, and report 

financial data for the 39 WYO insurance companies with which it had 

contracted to perform financial management activities. The audit report 

also found that accounting department and executive staff did not have 

the appropriate accounting expertise to adequately review and identify 

errors in the financial reporting process. The vendor disagreed with the 

audit report recommendation that it develop formalized procedures or 

controls over financial reporting but indicated that it would evaluate and 

document future procedures as necessary. A FEMA official said that 

FEMA did not follow up on the audit recommendations because the 

vendor went out of business shortly after the audit was completed. An 

audit report for fiscal year 2003 to 2004 covering another vendor’s 

financial management activities for 35 WYO insurance companies cited 

instances of noncompliance such as documentation missing from policy 

files and reports from claims adjusters not being filed within specified 

time frames. WYO insurance companies agreed to take action to address 

the audit recommendations. 

Page 39 GAO-07-1078 National Flood Insurance Program 
FEMA did not have a mechanism in place for tracking and reviewing the 

results of the biennial financial statement audits that were performed. 

FEMA officials were able to provide us with copies of only two biennial 

audit reports until the conclusion of our audit when they asked WYO 

insurance companies and their subcontractors to send copies of additional 

reports that might have been prepared. Thus, it was apparent that the 

results of the financial audits were not considered and used by FEMA to 

identify opportunities for program improvements. 

The NFIP was structured more than 25 years ago as a public-private 

partnership between the government and private insurance companies 

that agree to sell and service flood insurance policies on the government’s 

behalf. Over the years, the program has made flood insurance widely 

available to consumers, while FEMA and the taxpayers have assumed all 

of the financial risks for the program, should premiums be insufficient to 

cover claims. In the aftermath of the catastrophic flood events of 2005,

which tested all aspects of the federal government’s response to largescale natural disasters, FEMA and the WYO insurance companies worked 

together to settle an unprecedented number of flood insurance claims 

reasonably quickly. Moreover, the partnership has, over time, relieved

FEMA of the need to develop, hire, and train an in-house corps of sales 

agents, adjusters, and others to administer flood insurance. However, 

while the WYO program has been beneficial, FEMA runs the risk of not 

being able to ensure that it is able, as time goes on, to manage and control 

the program’s costs. In fiscal year 2006—the catastrophic year that 

included payments for claims resulting from Hurricane Katrina—FEMA 

paid almost 65 cents of every dollar collected in premiums to the WYO 

insurance companies. 

FEMA Did Not Track or 

Review Financial 

Statement Audits 

Conclusions 

Two factors account for the operating cost-related risks FEMA incurs 

through the WYO program. First, because FEMA cannot ensure that the 

schedule of operating costs it pays to WYO insurance companies is based 

on reasonable estimates of their expenses, FEMA does not know whether 

the operating costs it pays appropriately reflect the expenses the WYO 

insurance companies incur in selling and servicing NFIP policies and 

adjusting claims. This is primarily because FEMA has not significantly 

changed its methodologies for determining the schedule of operating costs 

for WYO insurance companies since 1983, when the current structure was 

created. As a result, the underlying methodologies may not take into 

account factors that have changed over the life of the program. For 

example, costs of claims settlements have trended upward as the costs of 

labor and materials to repair flood-damaged properties have increased, 

Page 40 GAO-07-1078 National Flood Insurance Program 
resulting in larger payment amounts to WYO insurance companies for 

adjusting claims. Information on costs WYO insurance companies allocate

to their federal flood business has been collected and reported by the 

NAIC since 1997 and reviewed by FEMA since 2004. Such information 

could be helpful to FEMA officials in determining appropriate payments to 

WYO insurance companies for the services they perform for the NFIP; 

however, FEMA officials said that they do not use the information to help 

determine a schedule of operating expenses because the WYO insurance 

companies are inconsistent in the ways they allocate costs to flood 

insurance and report the data. 

Second, a lack of sufficient oversight of WYO insurance companies’ 

financial management processes limits FEMA’s ability to ensure that 

payments made to the WYO insurance companies participating in the NFIP

were proper and in accordance with program requirements—and ensure 

that its operations are effective and efficient. Biennial financial statement 

audits were not completed as required by FEMA regulation. 

To improve financial accountability over payments the NFIP makes to the 

WYO insurance companies, to strengthen controls over expenditures of 

policyholders’ and taxpayers’ dollars, and to provide assurance that 

payments made to the WYO insurance companies are proper and in 

accordance with program requirements, we are recommending that the

Secretary of Homeland Security direct the Under Secretary of Homeland 

Security, FEMA, to take the following two actions: 

1. Ensure that its approach to establishing a schedule of operating costs 

is based on a reasonable estimate of actual expenses by taking such 

actions as FEMA deems necessary such as working with NAIC to 

ensure consistency in the way all WYO insurance companies compile 

and report data on expenses allocated to their federal flood business. 

2. Ensure that biennial financial statement audits of WYO insurance 

companies are conducted by independent CPA firms as required by 

FEMA regulation, and that FEMA reviews the audits to ensure that 

payments made are proper and in accordance with program 

requirements. 

On August 29, 2007, DHS provided written comments on a draft of this 

report dated August 14, 2007. DHS generally agreed with our 

recommendations to improve financial accountability over payments the 

Recommendations for 

Executive Action 

Agency Comments 

and Our Evaluation 

Page 41 GAO-07-1078 National Flood Insurance Program 
NFIP makes to the WYO insurance companies. However, DHS said our 

presentation in table 1 of payments to WYO insurance companies for all 

NFIP services for fiscal years 2004 to 2006 as a percentage of total 

premium revenues was “inappropriate and misleading” because it was 

most appropriate to compare the costs of adjusting and processing claims 

to total losses in a year, not premium revenue. We disagree. We believe it

is appropriate to summarize aggregate expense payment data as a 

percentage of premiums collected because, as noted in the report, the 

NFIP is designed to pay for flood losses and operating expenses to the 

extent possible with premium revenues rather than tax dollars. Our report 

also provides detailed information on the types of WYO payments made 

each year separately for claims and other costs, including agent 

commissions and expenses for selling and servicing policies. 

DHS concurred with our recommendation to work with NAIC to improve 

the consistency in the way WYO insurance companies compile and report

this data so that it is useful as an estimate of the WYO companies’ actual 

expenses for selling and servicing flood insurance policies. As progress is 

made, it will be incumbent upon FEMA to determine whether the data 

already collected on flood insurance program expenses are reliable and 

sufficiently comprehensive for FEMA to make a reasonable estimate of 

WYO insurance companies’ actual expenses. DHS also concurred with our 

recommendation that financial statement audits be conducted and the 

results reviewed. 

We are sending copies of this report to the Secretary of the Department of 

Homeland Security, the Administrator of the Federal Emergency 

Management Agency, selected congressional committees, and other 

interested parties. In addition, the report will be available at no charge on

the GAO Web site at http://www.gao.gov. Please contact William Jenkins at 

(202) 512-8757 or jenkinswo@gao.gov if you or your staff have any 

questions concerning this report. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. Key contributors to this report are listed in appendix IV. 

William O. Jenkins, Jr. 

Director, Homeland Security and Justice Issues

Page 42 GAO-07-1078 National Flood Insurance Program 
List of Congressional Committees: 

The Honorable Christopher J. Dodd 

Chairman 

The Honorable Richard C. Shelby 

Ranking Member 

Committee on Banking, Housing, and Urban Affairs 

United States Senate 

The Honorable Joseph I. Lieberman 

Chairman 

The Honorable Susan M. Collins 

Ranking Member 

Committee on Homeland Security and Governmental Affairs 

United States Senate 

The Honorable Barney Frank 

Chairman 

The Honorable Spencer Bachus 

Ranking Member 

Committee on Financial Services 

House of Representatives 

The Honorable Bennie G. Thompson

Chairman 

The Honorable Peter T. King 

Ranking Member 

Committee on Homeland Security 

House of Representatives 

The Honorable Henry A. Waxman 

Chairman 

The Honorable Tom Davis 

Ranking Member 

Committee on Oversight and Government Reform 

House of Representatives 

Page 43 GAO-07-1078 National Flood Insurance Program 
Appendix I: Scope and Methodology Appendix I: Scope and Methodology 

To assess how much the Federal Emergency Management Agency (FEMA) 

paid in recent years to the Write Your Own (WYO) insurance companies

that sell and service NFIP policies and adjust claims and how FEMA 

determines the amount of these operating costs, we analyzed data on 

amounts paid to WYO insurance companies for fiscal years 2004-2006. We 

also interviewed FEMA officials on how FEMA set the payment levels and 

how the agency reviews the methodologies in place to determine that they 

remain appropriate over time, and we examined available documentation

on FEMA’s payment methodologies. The data we examined included the 

amounts FEMA paid to WYO companies for selling and servicing policies, 

for growth incentive bonuses, and for expenses related to adjusting flood 

claims and paying flood claims adjusters. We discussed with FEMA 

officials the internal control processes in place and observed the monthly

process used by FEMA’s program contractor to reconcile cost information 

submitted by WYO insurance companies. We also reviewed audits of 

Department of Homeland Security (DHS) financial statements prepared 

for the DHS Office of Inspector General. We determined that the 

information was sufficiently reliable for our purposes. We conducted semistructured interviews with representatives of a judgmental sample of five 

WYO insurance companies and National Association of Insurance 

Commission (NAIC) officials to obtain their perspective on FEMA’s 

payment methodologies. Our sample included representatives of four of 

the five largest participating WYO insurance companies in terms of their 

market share of NFIP policies in force in 2006 and one mid-sized WYO 

insurance company. Our sample is not a representative sample of all 

participating WYO insurance companies, so the views expressed should 

not be generalized to the universe of the 88 participating companies. 

To determine how the approach FEMA uses to establish a schedule of 

operating costs provides assurance that it is based on reasonable 

estimates of WYO insurance companies’ expenses for the services 

rendered, we reviewed the statutory and regulatory framework for 

establishing a schedule of operating costs and obtained the views of FEMA 

and insurance industry officials on the effectiveness of the current 

payment approach and the potential implications of implementing other 

payment methodologies. We also assessed how the approach FEMA 

currently uses to pay WYO insurance companies for their services 

compares to payment methodologies used by two similar public-private 

insurance arrangements. To compare other public-private insurance 

partnerships, we first identified the universe of similar arrangements with 

which to compare the NFIP. We reviewed literature including prior GAO 

reports on federal government insurance programs. We determined and 

confirmed with NFIP officials that the only other federal insurance 

Page 44 GAO-07-1078 National Flood Insurance Program 
Appendix I: Scope and Methodology 

program with similar public-private partnership arrangements was the 

Federal Crop Insurance Corporation (FCIC), an insurance program that 

protects participating farmers against the financial losses caused by events

such as droughts, floods, hurricanes, and other natural disasters. In 

addition, we determined that FEMA’s contract with the NFIP Direct 

Servicing Agent, the contractor that administers four percent of NFIP 

policies on behalf of FEMA, used methods for calculating and paying for 

activities to sell and service policies and adjust claims that should be 

included in our scope. We then interviewed officials and reviewed contract 

and budget information on these two arrangements. Our analysis was 

designed to compare and contrast the arrangements to the NFIP’s WYO 

program. We did not make determinations on which programs had the 

best practices because information was not available on the expenses 

incurred by WYO insurance companies for their services to the NFIP. Our 

review was limited to the structure of the financial arrangements between 

the federal government and the FCIC and NFIP Direct Servicing Agent to 

compensate the private entities for selling and servicing government 

insurance policies and adjusting claims. We did not assess the overall

performance of the FCIC and the NFIP Direct Servicing Agent. 

To determine the extent to which FEMA’s financial management controls 

for WYO companies provide assurance that payments are proper and in 

accordance with program requirements, we reviewed FEMA’s regulations 

and procedures for monitoring and overseeing payments of expenses to 

WYO insurance companies for selling and servicing NFIP policies. We 

analyzed the schedule and results of biennial financial audits conducted 

for fiscal years 2001 to 2006. In addition, we reviewed financial audits of 

the NFIP done by the DHS Office of Inspector General for fiscal years 2003 

to 2006. In addition to biennial financial audits, we also reviewed other 

FEMA oversight mechanisms. We analyzed the results of 15 operational 

reviews and follow-up visits FEMA performed at WYO insurance 

companies from 2001 through February 2005, and we reviewed a 

statistically valid sample of quality assurance reinspections of claims 

adjustments for Hurricanes Katrina and Rita, and we determined that 

these oversight mechanisms did not provide direct information about the 

propriety and accuracy of payments made to the WYO insurance 

companies for their NFIP-related activities. We performed our work from 

June 2006 through July 2007, in accordance with generally accepted 

government auditing standards. 

Page 45 GAO-07-1078 National Flood Insurance Program 
Appendix II: Percentage

Allowances FEMA Authorized 

WYO Insurance Companies to 

Retain for Operating Expenses

Incurred in Selling and

Servicing NFIP Policies (Fiscal

Years 1984–2007) 

Appendix II: Percentage Allowances FEMA 

Authorized WYO Insurance Companies to Retain 

for Operating Expenses Incurred in Selling and 

Servicing NFIP Policies (Fiscal Years 1984–2007)

Fiscal year Expense allowance percentage

2007 30.2

2006 30.8

2005 31.2

2004 31.8

2003 31.8

2002 32.3

2001 31.0

2000 31.7

1999 31.7

1998 31.6

1997 32.6

1996 32.6

1995 32.6

1994 32.6

1993 32.0

1992 31.8

1991 30.3

1990 30.5

1989 30.1

1988 30.4

1987 32.2

1986 32.7

1985 32.0

1984 29.5

Source: FEMA. 

Page 46 GAO-07-1078 National Flood Insurance Program 
Appendix III: Comments from the Department Appendix III: Comments from the of Homeland Security

Department of Homeland Security 

Page 47 GAO-07-1078 National Flood Insurance Program 
Appendix III: Comments from the Department 

of Homeland Security

Page 48 GAO-07-1078 National Flood Insurance Program 
Appendix III: Comments from the Department 

of Homeland Security

Page 49 GAO-07-1078 National Flood Insurance Program 
Appendix III: Comments from the Department 

of Homeland Security

Page 50 GAO-07-1078 National Flood Insurance Program 
Appendix IV: 

St

GAO Contact and 

aff Acknowledgments

Page 51 GAO-07-1078

Appendix IV: GAO Contact and Staff 

Acknowledgments 

William O. Jenkins, Jr. (202) 512-8777 or jenkinswo@gao.gov

In addition to the contact named above, Christopher Keisling, Assistant 

Director; Amy Bernstein; Christine Davis; Dewi Djunaidy; 

Wilfred Holloway; Tracey King; Deborah Knorr; and Jesus Ramoz made 

significant contributions to this report. 

GAO Contact 

Acknowledgments 

National Flood Insurance Program 
Related GAO Products 

Page 52 GAO-07-1078

Related GAO Products 

National Flood Insurance Program: New Processes Aided Hurricane 

Katrina Claims Handling, but FEMA’s Oversight Should Be Improved. 

GAO-07-169. Washington, D.C.: December 15, 2006. 

GAO’s High-Risk Program. GAO-06-497T. Washington, D.C.: March 15, 

2006. 

Federal Emergency Management Agency: Challenges for the National 

Flood Insurance Program. GAO-06-335T. Washington, D.C.: January 25,

2006. 

Federal Emergency Management Agency: Improvements Needed to 

Enhance Oversight and Management of the National Flood Insurance 

Program. GAO-06-119. Washington, D.C.: October 18, 2005. 

Flood Insurance: Challenges Facing the National Flood Insurance 

Program. GAO-03-606T. Washington, D.C.: April 1, 2003. 

Major Management Challenges and Program Risks: Federal Emergency 

Management Agency. GAO-03-113. Washington, D.C.: January 1, 2003. 

Flood Insurance: Extent of Noncompliance with Purchase Requirements 

Is Unknown. GAO-02-396. Washington, D.C.: June 21, 2002. 

Flood Insurance: Information on the Financial Condition of the 

National Flood Insurance Program. GAO-01-992T. Washington, D.C.: 

July 19, 2001.

Flood Insurance: Emerging Opportunity to Better Measure Certain 

Results of the National Flood Insurance Program. GAO-01-736T. 

Washington, D.C.: May 15, 2001. 

Flood Insurance: Private Companies’ Participation in the Write Your 

Own Program. RCED-87-108. Washington, D.C.: May 29, 1987. 

Crop Insurance: Opportunities Exist to Reduce Government Costs for 

Private-Sector Delivery. RCED-97-70. Washington, D.C.: April 17, 1997. 

Crop Insurance: Participation in and Costs Associated with the Federal 

Program. RCED-88-171BR. Washington, D.C.: July 6, 1988. 

National Flood Insurance Program 

National Flood 

Insurance Program 

Federal Crop 

Insurance 

Corporation 

(440539) 
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