United States Government Accountability Office

GAO Report to Congressional Committees

NATIONAL FLOOD 

INSURANCE 

PROGRAM 

New Processes Aided 

Hurricane Katrina 

Claims Handling, but 

FEMA’s Oversight 

Should Be Improved 

December 2006 

 

GAO-07-169 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

December 2006

NATIONAL FLOOD INSURANCE 

PROGRAM 

New Processes Aided Hurricane Katrina 

Claims Handling, but FEMA’s Oversight 

Should Be Improved 

Highlights of GAO-07-169, a report to 

congressional committees. 

In August and September 2005,

Hurricanes Katrina and Rita caused

unprecedented destruction to 

property along the Gulf Coast,

resulting in billions of dollars of 

damage claims to the National 

Flood Insurance Program (NFIP). 

This report, which we initiated 

under the authority of the 

Comptroller General, examines 

(1) the impact of Hurricanes 

Katrina and Rita on the NFIP and 

paid losses by location and 

property type; (2) the challenges

the Federal Emergency 

Management Agency (FEMA) and 

others faced in addressing the

needs of NFIP claimants and 

communities; (3) FEMA’s methods

of monitoring and overseeing 

claims adjustments; and 

(4) FEMA’s efforts to meet the 

requirements of the Flood 

Insurance Reform Act of 2004 to 

establish policyholder coverage 

notifications, an appeals process 

for claimants, and education and 

training requirements for agents. 

To conduct these assessments,

GAO interviewed FEMA and 

insurance officials, analyzed claims 

data, and examined a sample of

reports done on the accuracy of

claims adjustments. 

What GAO Recommends

GAO recommends that FEMA 

analyze the overall results of 

reinspection reports on the 

accuracy of claims adjustments for 

future floods. The Department of

Homeland Security reviewed a 

copy of this report and agreed with 

our recommendation. 

NFIP paid an unprecedented dollar amount for a record number of claims 

from Hurricanes Katrina and Rita. Congress increased NFIP’s borrowing 

authority with the U.S. Treasury from a pre-Katrina level of $1.5 billion to 

about $20.8 billion in March 2006, but FEMA will probably not be able to 

repay this debt on annual premium revenues of about $2 billion. As of May 

2006, NFIP had paid approximately 162,000 flood damage claims from 

Hurricane Katrina and another 9,000 claims from Hurricane Rita. Most paid 

claims were for primary residences where flood insurance was generally 

required. 

FEMA and its private sector partners faced several challenges in processing 

a record number of flood claims from Hurricanes Katrina and Rita, among 

them were (1) reaching insured properties in a timely way because of 

blocked roadways and flood water contamination and (2) identifying badly 

damaged homes to be inspected in locations where street signs had washed 

away. Despite these and other obstacles, FEMA reported that over 

95 percent of Gulf Coast claims had been closed by May 2006, a time frame 

comparable to those for closing claims in other, smaller recent floods. To 

help keep pace with the volume of claims filed, FEMA approved expedited 

methods for claims processing that were unique to Hurricanes Katrina and 

Rita. 

To provide oversight of the claims adjustment process, FEMA’s program 

contractor did quality assurance reinspections of Hurricane Katrina and Rita 

claims adjustments. FEMA did not adopt our October 2005 recommendation 

that it select the claims to be reinspected from a random sample of the 

universe of all closed claims; thus, the results of the reinspections cannot be 

projected to a universe larger than the 4,316 claims adjustments that were 

reinspected. FEMA agrees with our prior recommendation and plans to do 

quality reinspections in future flood events based on a random sample of all 

claims. FEMA did not analyze the overall results of the quality reinspections 

for Hurricanes Katrina and Rita. 

FEMA has made progress but has not fully implemented the NFIP program 

changes mandated by the Flood Insurance Reform Act. For example, 

15 states had adopted minimum education and training requirements for 

insurance agents who sell NFIP policies, as of October 2006. 

www.gao.gov/cgi-bin/getrpt?GAO-07-169.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact William O.

Jenkins at (202) 512-8757.. 
Contents 

Letter 1

Results in Brief 5 

Background 10

Hurricanes Katrina and Rita Had a Far-Reaching Impact on the 

Financial Solvency of the NFIP 14 

FEMA and Private Sector NFIP Partners Were Challenged to 

Process a Record Number of Claims and Address the Needs of

NFIP Claimants and Communities 24 

Results of Monitoring and Oversight of Claims Payments Were 

Inconclusive because FEMA Did Not Reinspect a Statistically 

Valid Sample of Claims 34 

FEMA Has Made Progress Implementing NFIP Program Changes in 

the Flood Insurance Reform Act of 2004 39 

Conclusions 43

Recommendation for Executive Action 44 

Agency Comments and Our Evaluation 45 

Appendix I Scope and Methodology 48 

Appendix II Statistical Information on NFIP Claims Paid for 

Hurricanes Katrina and Rita 51 

Appendix III Parishes and Counties Where FEMA Issued Advisory 

Flood Elevation Guidance 53 

Appendix IV Results of GAO Review of a Random Selection 

of Reinspection Reports for Hurricanes Katrina 

and Rita 54 

Appendix V State Actions on Training of Agents That Sell 

NFIP Policies 57 

Page i GAO-07-169 National Flood Insurance Program
Appendix VI Comments from the Department of Homeland 

Security 58 

Appendix VII GAO Contact and Staff Acknowledgments 61 

Tables 

Table 1: Hurricane Katrina Loss Information by State 19 

Table 2: Hurricane Rita Loss Information by State 19 

Table 3: Number of FEMA Quality Assurance Reinspection 

Reports and the Sample We Reviewed, by Process Type 

and Flood Event 50 

Table 4: Hurricane Katrina Principal and Nonprincipal Residential 

Paid Losses by State 51 

Table 5: Hurricane Rita Principal and Nonprincipal Residential 

Paid Losses by State 51 

Table 6: Hurricane Katrina Paid Residential Losses for Dwellings 

and Contents by State 52 

Table 7: Hurricane Rita Paid Residential Losses for Dwellings and 

Contents by State 52 

Table 8: Parishes and Counties Where FEMA Issued Advisory 

Flood Elevation Guidance 53 

Page ii GAO-07-169 National Flood Insurance Program
Figures 

Figure 1: NFIP Policies in Force, 1978–2006 11 

Figure 2: Total NFIP Payments to Claimants, 1972–2005 15 

Figure 3: Average Loss Payments for Hurricanes Katrina and Rita 

and Flood Events from 2002 to 2004 16 

Figure 4: Hurricane Katrina Losses by Location 18 

Figure 5: Hurricane Katrina Paid Losses for Principal and 

Nonprincipal Noncondominium Residential Properties 20 

Figure 6: Hurricane Rita Paid Losses for Principal and Nonprincipal

Noncondominium Residential Properties 21 

Figure 7: Hurricane Katrina Claims Paid In and Out of Special

Flood Hazard Areas 22 

Figure 8: Hurricane Rita Claims Paid In and Out of Special Flood 

Hazard Areas 22 

Figure 9: Hurricane Katrina Paid Residential Losses for Dwellings 

and Contents 23 

Figure 10: Hurricane Rita Paid Residential Losses for Dwellings 

and Contents 24 

Figure 11: Flood Adjusters Were Challenged to Get To and Identify 

Heavily Damaged Houses 26 

Figure 12: A New Orleans House Is Elevated Using ICC Coverage to 

Pay Some Costs 31 

Figure 13: Results of GAO Review of Quality Reinspections of 

Hurricanes Katrina and Rita Claims Processed Using 

Expedited Procedures 54 

Figure 14: Results of GAO Review of Quality Reinspections of 

Hurricane Katrina Claims Processed Using Regular Claims 

Adjustment Procedures 55 

Figure 15: Results of GAO Review of Quality Reinspections of 

Hurricane Rita Claims Processed Using Regular Claims 

Adjustment Procedures 56 

Page iii GAO-07-169 National Flood Insurance Program
Abbreviations 

DHS Department of Homeland Security 

FEMA Federal Emergency Management Agency 

FIRM Flood Insurance Rate Map 

ICC increased cost of compliance 

NFIP National Flood Insurance Program 

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Page iv GAO-07-169 National Flood Insurance Program
United States Government Accountability Office

Washington, DC 20548 

December 15, 2006 

In late August 2005, Hurricane Katrina came ashore and destroyed or made

uninhabitable an estimated 300,000 homes along the Gulf Coast of the 

United States. Hurricane Rita followed a few weeks later, making landfall

in Texas and Louisiana and adding to the devastation, with Louisiana 

suffering the most damaging effects from both hurricanes. Much of the 

damage all along the Gulf Coast was the result of catastrophic flooding. As 

a result, the National Flood Insurance Program (NFIP) had a large role to 

play in the region’s recovery. Federal Emergency Management Agency 

(FEMA) officials estimate that half of Hurricane Katrina and Rita flood 

victims were insured by the NFIP. Those who did have coverage filed 

more than five times the number of claims, through May 31, 2006, at 

10 times the cost of any other prior flood event in NFIP history. 

In late August 2005, Hurricane Katrina came ashore and destroyed or made

uninhabitable an estimated 300,000 homes along the Gulf Coast of the 

United States. Hurricane Rita followed a few weeks later, making landfall

in Texas and Louisiana and adding to the devastation, with Louisiana 

suffering the most damaging effects from both hurricanes. Much of the 

damage all along the Gulf Coast was the result of catastrophic flooding. As 

a result, the National Flood Insurance Program (NFIP) had a large role to 

play in the region’s recovery. Federal Emergency Management Agency 

(FEMA) officials estimate that half of Hurricane Katrina and Rita flood 

victims were insured by the NFIP. Those who did have coverage filed 

more than five times the number of claims, through May 31, 2006, at 

10 times the cost of any other prior flood event in NFIP history. 

The NFIP was established in 1968 in part to provide some insurance 

protection for flood victims because private insurers were and are still 

largely unwilling to bear the economic risks associated with the 

potentially catastrophic impact of flooding. Under statute, homeowners 

may purchase up to $250,000 of NFIP coverage on their dwellings and up 

to an additional $100,000 for coverage of personal property (i.e., furniture 

and electronic equipment), and business owners may purchase up to 

$500,000 of coverage on their building structures and $500,000 on the 

contents. 

The NFIP was established in 1968 in part to provide some insurance 

protection for flood victims because private insurers were and are still 

largely unwilling to bear the economic risks associated with the 

potentially catastrophic impact of flooding. Under statute, homeowners 

may purchase up to $250,000 of NFIP coverage on their dwellings and up 

to an additional $100,000 for coverage of personal property (i.e., furniture 

and electronic equipment), and business owners may purchase up to 

$500,000 of coverage on their building structures and $500,000 on the 

contents. 

As of June 2006, the NFIP had a little over 5.1 million policies in force. 

About 3 million of the policies, about 62 percent, were for properties in the 

five states affected by Hurricanes Katrina and Rita, and Florida had the 

largest number of policies of any state in the nation, with almost 

2.1 million.1

 Homeowners are required to purchase flood insurance at least

equal to the amount of their outstanding mortgage up to the maximum 

policy limit if (1) their property is within a designated special high-risk 

flood hazard area and (2) their mortgage was issued by a federally 

regulated lender. Optional, lower-cost coverage is available under the 

NFIP to protect homes in areas of low to moderate risk. 

As of June 2006, the NFIP had a little over 5.1 million policies in force. 

About 3 million of the policies, about 62 percent, were for properties in the 

five states affected by Hurricanes Katrina and Rita, and Florida had the 

largest number of policies of any state in the nation, with almost 

2.1 million.1

 Homeowners are required to purchase flood insurance at least

equal to the amount of their outstanding mortgage up to the maximum 

policy limit if (1) their property is within a designated special high-risk 

flood hazard area and (2) their mortgage was issued by a federally 

regulated lender. Optional, lower-cost coverage is available under the 

NFIP to protect homes in areas of low to moderate risk. 

National Flood I al Flood Insurance surance Program

 

9

 1

Alabama, Florida, Louisiana, Mississippi, and Texas are the five states in which major 

disaster declarations were made for Hurricane Katrina or Rita. 

Page 1 GAO-07-169
The NFIP is intended to pay operating expenses and insurance claims with 

flood insurance policy premiums rather than tax dollars, but it has 

statutory authority to borrow funds from the U. S. Treasury to keep 

solvent in heavy loss years.2

 Historically, the NFIP has been able to repay 

funds borrowed from the Treasury to meet its claims obligations. 

However, the magnitude and severity of losses from Hurricane Katrina and

other 2005 hurricanes required the NFIP to obtain borrowing authority of

$20.8 billion from the Treasury, an amount the program is unlikely to be

able to repay while paying future claims with its current premium income 

of about $2 billion annually. As a result of the catastrophic losses, we 

designated the program as a high-risk area in March 2006, and Congress is 

considering a number of legislative changes to improve the NFIP’s 

financial solvency.

3

The Federal Emergency Management Agency, within the Department of 

Homeland Security, administers the NFIP. FEMA pays 88 private 

insurance companies to perform the administrative functions of selling 

and servicing flood insurance policies and settling claims, although the 

companies do not assume risk for losses. To settle claims, including those 

from Hurricanes Katrina and Rita, insurance companies work with 

certified flood adjusters who assess damages and estimate losses. The 

NFIP pays for adjuster services according to a standard fee schedule. For 

example, for the average claims settlement amount for Hurricane Katrina, 

$94,803, the NFIP fee schedule authorizes payment of 3 percent of the 

claim amount, or $2,844, for adjusting services. FEMA is responsible for 

the management and oversight of the NFIP and is assisted in performing 

these functions by a program contractor. The NFIP also provides 

incentives for communities to adopt and enforce floodplain management 

regulations to reduce future flood damage. 

After NFIP policyholders cited concerns regarding the processing and 

payments of claims after Hurricane Isabel in 2003, Congress passed the 

Flood Insurance Reform Act. This act reauthorized the program and 

directed FEMA to take actions to provide policyholders with additional 

information on their coverage, establish a regulatory appeals process for 

those who disagree with actions taken to settle their claims, and establish 

minimum education and training requirements for agents that sell policies.

In addition, the Flood Insurance Reform Act authorized a pilot program to 

 2

42 U.S.C. § 4001(d) (2000); 42 U.S.C. § 4016 (2000). 

3

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

Page 2 GAO-07-169 National Flood Insurance Program
help reduce the inventory of properties that have had repetitive claims for 

flood damage.4

The unprecedented number of losses from Hurricanes Katrina and Rita 

confronted the NFIP with management and accountability challenges 

never before faced in its almost 40-year history. This report, prepared 

under the authority of the Comptroller General to initiate reviews on his 

own, (1) describes the impact of Hurricanes Katrina and Rita on the NFIP

and the extent of the losses paid by location and type of property; 

(2) describes the challenges FEMA and its private sector partners faced 

and the results of their efforts to process flood claims from Hurricanes 

Katrina and Rita and address the needs of NFIP claimants and 

communities; (3) assesses FEMA’s method of monitoring and overseeing 

claims adjustments and the results of that monitoring and oversight; and 

(4) assesses FEMA’s efforts to implement the provisions of the Flood 

Insurance Reform Act of 2004 by establishing notifications on coverage to

policyholders, an appeals process for claimants, agent education and 

training requirements, and a pilot program to help reduce the number of 

insured properties that have sustained repeated severe flood losses. 

We have recently completed or have under way several other reports and 

testimonies related to FEMA’s administration and management of the 

NFIP. In October 2005, we issued a report that reviewed, among other 

things, FEMA’s monitoring and oversight of the NFIP and the status of its 

implementation of provisions of the Flood Insurance Reform Act of 2004. 

In that report, we recommended that FEMA use a statistically valid 

method to select claims for review and establish milestones for meeting 

provisions of the Flood Insurance Reform Act. We testified on the results 

of that work before the Senate Committee on Banking, Housing and Urban

Affairs and the House Financial Services Committee Subcommittee on 

 4

Hurricane Isabel caused flood damage in Delaware, Maryland, North Carolina, 

Pennsylvania, South Carolina, Virginia, and Washington, D.C., that resulted in 19,523 claims

for which the NFIP paid $456 million to policyholders. The NFIP reauthorization legislation 

is the Bunning, Bereuter-Blumenauer Flood Insurance Reform Act of 2004, Pub. L. No. 108-

264, 118 Stat 712 (codified in scattered sections of 42 U.S.C. (2004). 

Page 3 GAO-07-169 National Flood Insurance Program
Housing and Community Opportunity.5

 In January 2006, we testified again 

before the Senate Committee on Banking, Housing and Urban Affairs on 

challenges facing the NFIP.6

 In addition, we have work under way to 

examine the cost of operating the NFIP, including fees paid for the 

services of private insurance companies and claims adjusters. We 

anticipate issuing a report on that work in 2007. In other related work on 

catastrophe insurance issues, we are reviewing natural hazard loss 

mitigation activities and assessments of hurricane damages caused by 

wind versus flooding. We also anticipate reporting on this work in 2007. 

To describe the impact of Hurricanes Katrina and Rita on the NFIP and the 

extent of the losses paid by location and property type, we reviewed 

congressional actions to increase the NFIP borrowing authority, and we 

interviewed the Director and other officials of FEMA’s Mitigation Division. 

We also analyzed data on claims payments from the NFIP management 

information system. We tested the reliability of the NFIP database to 

assure ourselves that the information we obtained from it was sufficiently 

reliable for our reporting purposes. 

To describe the challenges FEMA and its private sector partners faced and 

the results of their efforts to process flood claims resulting from 

Hurricanes Katrina and Rita and address the needs of NFIP claimants and 

communities, we interviewed selected headquarters and field officials of

FEMA and its program contractor. We conducted semistructured 

interviews with insurance industry officials involved in the recovery effort 

selected on the basis of our judgment. Their views are not representative 

of the universe of all insurance industry officials involved in the flood 

recovery effort. We documented policies and procedures in place for 

claimants who disagreed with actions taken to settle their claims, and we 

collected and analyzed available NFIP data on complaints and appeals 

filed by claimants. We also interviewed selected officials regarding actions 

taken to develop and issue advisory opinions on elevations for rebuilding 

 5

See GAO, Federal Emergency Management Agency: Improvements Needed to Enhance 

Oversight and Management of the National Flood Insurance Program, (GAO-06-119 

(Washington, D.C.: Oct. 18, 2005); GAO, Federal Emergency Management Agency: 

Challenges Facing the National Flood Insurance Program (GAO-06-174T (Washington,

D.C.: Oct. 18, 2005); and GAO, Federal Emergency Management Agency: Oversight and

Management of the National Flood Insurance Program, (GAO-06-183T Washington, D.C.: 

Oct. 20, 2005). 

6

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

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

Page 4 GAO-07-169 National Flood Insurance Program
after the hurricanes in 15 Louisiana and Mississippi communities, and we 

reviewed the advisories and analyzed impacts on the communities’ 

recovery efforts. 

To assess FEMA’s role in monitoring and overseeing the NFIP and the 

results of that oversight, we examined guidance for the quality assurance 

reinspections that FEMA’s program contractor conducts for a sample of 

claims adjustments after every flood event and followed up on action 

taken on our prior recommendation for improvements in the quality 

reinspection program.7

 We interviewed FEMA and program contractor 

officials involved in the quality assurance process, and we conducted a 

review of a random sample of the quality reinspections done of Hurricane 

Katrina and Rita claims adjustments.8

To assess the status of FEMA’s efforts to implement provisions of the 

Flood Insurance Reform Act of 2004 after Hurricanes Katrina and Rita, we 

interviewed FEMA officials and examined documentation of the actions

FEMA took. We assessed FEMA’s actions to comply with the provisions to 

determine whether they met the legal requirements of the act. We 

performed our work from December 2005 through November 2006 in 

accordance with generally accepted government auditing standards. Our 

scope and methodology are discussed in greater detail in appendix 1. 

Hurricane Katrina, closely followed by Hurricane Rita, had a far-reaching

impact on the NFIP. Both the number of claims paid and the value of 

claims payments were unprecedented. As a result, claims for damages 

from the 2005 hurricane season far exceeded the ability of the NFIP to pay 

for them. The NFIP’s borrowing authority with the U.S. Treasury was 

increased from $1.5 billion before Hurricane Katrina to about $20.8 billion 

in March 2006. As we have reported, it is unlikely that the NFIP will be 

able to repay this debt and pay future claims with annual insurance 

premium revenue of about $2 billion.9

 Legislation has been introduced in

Congress to forgive the debt, and attention has focused on the extent of 

the federal government’s exposure for future catastrophic losses and ways 

Results in Brief 

 7

See GAO-06-119. 

8

Percentage estimates from our sample have 95 percent confidence intervals of within +/- 5 

percentage points of the estimate. 

9

See GAO-06-335T. 

Page 5 GAO-07-169 National Flood Insurance Program
to improve the program’s financial solvency. As of May 2006, with over 95

percent of the claims reported by FEMA to be closed, the NFIP had paid

claims for about 162,000 losses for flood damage from Hurricane Katrina 

in Alabama, Florida, Louisiana, and Mississippi. About 135,000 of these 

claims (about 83 percent) were in Louisiana. As of July 2006, more than 

83,500 claims resulted from property damage in the New Orleans area. 

About 9,000 additional NFIP claims, over 7,000 of them in Louisiana, were 

paid as a result of losses from Hurricane Rita. To put the number of loss 

claims in perspective, the NFIP processed a little more than 30,000 claims 

in each of the two largest single flood events prior to Hurricane Katrina, a 

1995 Louisiana flood and Tropical Storm Allison in 2001. The average 

amount paid per claim for Hurricane Katrina flood damages, about 

$94,800, was about three times the average paid per claim in the previous 

record year, 2004, for damages from flood events including Hurricanes 

Charley, Ivan, Frances, and Jeanne in Florida and other East Coast and 

Gulf Coast states. Most paid losses were for primary residences within 

special flood hazard areas in which flood insurance was generally 

required, but about 16 percent of claims for noncondominium residential 

losses from Hurricane Katrina (24,511) were for nonprincipal residences 

(i.e., second homes), and (about 22 percent) of claims paid for Hurricane 

Katrina (about 36,000) were on properties outside of the special flood 

hazard areas where purchase of flood insurance is optional. 

The magnitude and severity of the damages from Hurricane Katrina closely 

followed by Hurricane Rita presented FEMA and its private sector NFIP 

partners with challenges to accurately process a record number of flood 

claims in a timely manner and address other needs of NFIP claimants and 

communities. Among the challenges FEMA and private sector officials we 

interviewed said they faced were difficulties in (1) reaching the insured 

properties for up to a month because debris blocked roadways and flood 

waters contaminated houses, and (2) identifying the demolished homes to 

be inspected on streets where signs had washed away. Despite these and

other obstacles, FEMA reported that over 95 percent of the Gulf Coast 

claims were closed by May 2006, about 9 months after the storms struck. 

The time periods for closing claims were comparable to those for closing 

claims in other, smaller recent flood events. Concerns from claimants 

about actions taken to settle their claims were relatively few in relation to

the large number of claims filed. For example, as of April 2006, 13 appeals 

had been filed by claimants related to settlements of their claims for 

Hurricane Katrina damage, and no appeals had been filed on claims for 

damage from Hurricane Rita. To help keep pace with the volume of claims 

filed and assist policyholders, FEMA approved expedited methods for 

claims processing that were unique to Hurricanes Katrina and Rita and 

Page 6 GAO-07-169 National Flood Insurance Program
took other special actions to assist claimants. In some circumstances 

where data showed that flood losses exceeded policy limits, FEMA 

authorized claims payments to policy limits without site visits by certified 

flood claims adjusters or allowed the use of models that paid claims based 

on the square footage of the home and general classification by adjusters 

of the quality of its building materials (i.e., flooring and doors). FEMA 

authorized payments to its private insurance company partners of $750 per 

expedited claim adjustment—a lower fee than would have been paid for a 

more time-consuming room-by-room, line-item-by-line-item visual 

assessment of flood damage. 

As in previous flood events, FEMA’s primary method of monitoring and 

overseeing claims settlements and addressing concerns from claimants 

was its quality reinspection program. Employees of FEMA’s program 

contractor are to reinspect a sample of claims adjustments for every flood 

event to identify errors, among other things. As of August 2006, FEMA’s 

program contractor had conducted quality assurance reinspections of 

4,316 Hurricane Katrina and Rita claims. FEMA also organized a special

task force to review an additional 1,696 claims adjusted using expedited 

methods. However, FEMA neither used a random sample of all claims 

closed for its reinspections nor analyzed the overall results of those 

reinspections to determine the total number of payment errors and their 

potential causes—actions that we have reported are necessary to meet our 

internal control standard that FEMA have reasonable assurance that 

program objectives are being achieved (e.g., claims are settled accurately) 

and its operations are effective and efficient. Instead of using a random 

sample of all closed claims, as we recommended in October 2005, FEMA’s 

sample selection was based upon judgmental criteria including, among 

other items, the size and location of loss and complexity of claims. 

Consequently, the results of FEMA’s NFIP quality reinspection program 

for Hurricanes Katrina and Rita cannot be projected to a population larger 

than the 4,316 claims adjustments that were reinspected. As a result, 

FEMA is unable to determine the overall accuracy of claims settled for 

specific flood events. A FEMA official told us that FEMA expects to use a 

random sample for future flood events, as we recommended, but was not 

able to do so in the aftermath of Hurricanes Katrina and Rita because 

other priorities to meet the needs of claimants and communities took 

precedence. Neither FEMA nor its program contractor analyzed the 

overall results of the 4,316 quality reinspections for Hurricanes Katrina 

and Rita done between January and September 2006 to identify the total

number of payment errors and the magnitude of those errors. We reviewed 

a random sample of these 4,316 reinspections and estimated there were 

payment errors in about 14 percent of the Hurricane Katrina reinspected 

Page 7 GAO-07-169 National Flood Insurance Program
claims adjusted using regular processes, 1 percent of the Hurricanes 

Katrina and Rita reinspected claims adjusted using expedited methods, 

and 2 percent of Hurricane Rita reinspected claims adjusted using regular 

processes. Payment errors identified in our review of reinspection reports 

for Hurricane Katrina claims settled using regular processes included 

8 underpayments that ranged from more than $131,000 to $543 and 

36 overpayments that ranged from $65,000 to $86. 10 Because, in the past, 

FEMA has had neither an appropriate sampling methodology nor a 

requirement for an overall analysis of the accuracy of the claims 

adjustments after every flood event, we do not know how the error rates 

we identified compare to adjusting errors in other smaller flood events. 

FEMA has procedures in place to recover overpayments made by 

insurance companies and adjust payments to policyholders for 

underpayments. 

FEMA made progress in implementing the NFIP program changes 

provided for in the Flood Insurance Reform Act of 2004, since we last 

reported on the status of the implementation in October 2005.11 However, 

implementation is not yet complete. The act mandated FEMA by 

December 30, 2004, to (1) develop supplemental materials for explaining

NFIP coverage and the claims process to policyholders when they 

purchase and renew policies; (2) establish, by regulation, an appeals 

process for claimants; and (3) establish, in cooperation with the insurance 

industry, state insurance regulators, and other interested parties, minimum 

training and education requirements for flood insurance agents and 

publish the requirements in the Federal Register. The act also authorized 

FEMA to create a pilot program to provide financial assistance to states 

and communities to carry out certain activities, including elevating and

demolishing structures that have suffered severe and repeated damage 

from flooding.

12 FEMA has met the requirements of the act to establish 

notifications on coverage to policyholders and an appeals process for 

claimants. With respect to the requirement that it establish minimum 

education and training requirements for agents who sell NFIP policies, 

FEMA published a notice in the Federal Register in September 2005,

stating that it intended to implement the standards through existing state 

 10 In two instances, we could not identify underpayment amounts and in one instance we 

could not identify an overpayment amount. 

11See GAO-06-119. 

12Id. At § 102 (codified at 42 U.S.C. § 4102a (2004)). 

Page 8 GAO-07-169 National Flood Insurance Program
licensing schemes for insurance agents. To that end, FEMA has actively 

solicited partnerships with state legislators and the insurance industry to 

implement training standards. However, as we reported in October 2005, 

FEMA has not developed milestones for state adoption of minimum 

training and education requirements.13 As of October 2006, 15 states have

established minimum training and education requirements for insurance 

agents that sell NFIP policies. Two states have issued advisory notices, 

and 1 state has established standards for a continuing education course in

flood insurance but has not made the course mandatory.14 As of October 

2006, FEMA had not developed and issued guidance for implementing the 

pilot program authorized by the act to help reduce the inventory of NFIP 

properties that have sustained repeated severe flood losses. However, 

officials said that they had made progress in developing the program 

guidance and implementing regulations. 

To strengthen and improve FEMA’s monitoring and oversight of the NFIP, 

including ensuring that claims payments are accurately determined, we are 

recommending that FEMA analyze the overall results of a statistically valid 

sample of claims adjustments to be completed for each future flood event 

to determine the number and types of claims adjustment errors made and 

to help determine whether new, cost-efficient methods for adjusting 

claims that were introduced after Hurricane Katrina are feasible to use 

after other flood events.

In commenting on a draft of this report, the Department of Homeland 

Security (DHS) agreed with our recommendation to improve its quality 

reinspection program and stated that it was revising its guidance 

accordingly and would use the recommended sampling and reporting 

procedures in future flood events. DHS reiterated a comment made in 

FEMA’s review of our October 2005 report that we did not review all of the 

controls and processes that FEMA has in place to provide oversight for the 

NFIP. Most of the additional oversight and management processes and 

controls that FEMA has in place are for financial management—an area 

not included in the scope of our work for this report but to be addressed in

work that we have under way. DHS also provided additional information 

about the determination of the number of quality control reinspections to 

 13See GAO 06-119. 

14Eleven of the14 states that implemented minimum training standards did so through 

bulletins or advisory opinions, which are not enforceable by law but are enforced in 

practice. 

Page 9 GAO-07-169 National Flood Insurance Program
be performed after flood events and actions it has taken to implement the 

provision of the Flood Insurance Reform Act of 2004 to establish, in 

cooperation with the insurance industry, state insurance regulators, and 

other interested parties, minimum training and education requirements for 

flood insurance agents and publish the requirements in the Federal 

Register. DHS’s comments are contained in appendix VI. In addition, DHS 

provided a technical comment, which we incorporated into the report. 

Ninety percent of all natural disasters in the United States involve 

flooding. Although homeowner insurance policies typically cover damage 

and losses from fire or theft and often from wind-driven rain, they do not 

cover flood damage because private insurance companies are largely 

unwilling to bear the economic risks associated with the potentially 

catastrophic impact of flooding. To provide some insurance protection for 

flood victims, as well as incentives for communities to adopt and enforce 

floodplain management regulations to reduce future flood damage, and to

reduce the amount of federal disaster assistance payments, federal law 

established the NFIP in 1968.15 The legislative history of the National Flood 

Insurance Act recognized that insurance for existing buildings constructed 

before the NFIP was established would be extremely expensive because 

most of them were flood prone and did not comply with NFIP floodplain 

management standards that went into effect after they were built. The 

authorizing legislation included provisions for subsidized insurance rates

to be made available for policies covering certain structures to encourage

communities to join the program. Under the NFIP, the properties are 

generally referred to as Pre-FIRM (Flood Insurance Rate Map) buildings. 

Background 

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

in 1978 to 5.1 million policies in July 2006. 

 15The National Flood Insurance Act of 1968, as amended, is codified at 42 U.S.C. 4001-4129. 

Page 10 GAO-07-169 National Flood Insurance Program
Figure 1: NFIP Policies in Force, 1978–2006

Policies in force

Source: FEMA.

Calendar year

0

650,000

1,300,000

1,950,000

2,600,000

3,250,000

3,900,000

4,550,000

5,200,000

200

2002

2003

2004

2005

2006

1

199

1999

2000

8

19

1990

1991

1992

1993

1994

1995

1996

1997

89

1988

1987

1986

1985

1984

1983

1982

1981

1980

197

1979

8

NFIP Provides Insurance 

and Maps Flood Risk for 

Communities That Agree 

to Enforce Land Use 

Regulations 

More than 20,100 communities nationwide participate in the NFIP. To 

participate in the program, communities agree to enforce regulations for 

land use and new construction in high-risk flood zones. In exchange, the 

NFIP studies and maps flood risks and makes federally backed flood 

insurance available to homeowners and other property owners. The maps 

identify special high-risk flood hazard areas, also known as the 100-year 

floodplain. These areas have a 1 percent chance of being flooded in any 

given year or at least a 26 percent chance of being flooded over the 30-year 

life of a typical home mortgage. 

Property owners in the special high-risk flood hazard areas whose 

communities participate in the NFIP and who have mortgages from 

federally regulated lenders are required to purchase flood insurance on 

their dwellings for at least the outstanding amount of their mortgages up 

to the maximum policy limit of $250,000. 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. Maximum coverage amounts under the NFIP are 

$250,000 for dwellings and $100,000 for personal property. 

Page 11 GAO-07-169 National Flood Insurance Program
Accurate flood maps that identify the areas at greatest risk of flooding are 

the foundation of the NFIP. Flood maps must be periodically updated to 

assess and map changes in the boundaries of floodplains that result from 

community growth, development, erosion, and other factors that affect the 

boundaries of areas at risk of flooding. FEMA is in the midst of a multiyear effort to update the nation’s flood maps at a cost in excess of 

$1 billion. The maps are principally used by (1) more than 

20,100 communities participating in the NFIP to adopt and enforce the 

program’s minimum building standards for new construction within the 

maps’ identified flood plains, (2) FEMA to develop flood insurance policy 

rates based on flood risk, and (3) federally regulated mortgage lenders to 

identify those property owners who are required to purchase federal flood 

insurance. 

Private Insurers Sell 

Policies and Adjust NFIP

Claims under FEMA 

Oversight and 

Management 

The work of selling, servicing, and adjusting NFIP claims is carried out by 

thousands of private sector insurance agents and adjusters who work 

independently or are employed by insurance companies, adjusting firms, 

or designated subcontractors under the oversight and management of 

FEMA within the Department of Homeland Security. According to FEMA, 

about 95 percent of the NFIP policies in force are written by insurance 

agents who represent 88 private insurance companies that are paid fees 

for performing administrative services for the NFIP but do not have 

exposure for claims losses.16 The companies, called write-your-own 

companies, receive an expense allowance from FEMA of about one-third

of the premium amounts for their services and are required to remit 

premium income in excess of this allowance to the National Flood 

Insurance Fund.17 The write-your-own companies also receive a

percentage fee—about 3.3 percent of the incurred loss—for adjusting and 

settling claims.18

To settle claims, including those from Hurricanes Katrina and Rita, 

insurance companies work with certified flood adjusters. When flood 

 16The other 5 percent of policies are sold and serviced by state-licensed insurance agents 

and brokers who deal directly with FEMA.

17The fund, which was established in the Treasury by the 1968 legislation authorizing the

NFIP, is the account into which premiums are deposited and from which losses and 

operating and administrative costs are paid. See 42 U.S.C. 4017. 

18The fee is paid by the NFIP for costs to establishing and staffing operations centers in 

flooded communities, according to a FEMA official. 

Page 12 GAO-07-169 National Flood Insurance Program
losses are reported, the write-your-own companies assign 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, 

work sheets, and photographs to the insurance company, where the claim 

is reviewed and, if approved, processed for payment. Adjusters determine 

the price for repairs by reviewing estimates of costs prepared by 

policyholders and their contractors, consulting pricing software, and 

checking local prices for materials. 

Adjusters are paid for their services according to a standard fee schedule 

that is paid in addition to the fees paid to the insurance companies. 

Adjusters who work for an adjusting company share the fees with the 

company in exchange for adjusting assignments and administrative 

support. For example, for the average claims settlement amount for 

Hurricane Katrina, $94,803, the NFIP fee schedule authorizes payment of 

3 percent of the claim amount, or $2,844, for adjusting services. For claims 

adjusted under the expedited claims processing procedures that were 

introduced after Hurricane Katrina, FEMA authorized payment of $750 for 

each claim plus an additional $400 if a site visit was required later in the 

claims adjustment process. 

Among the requirements for certification as a claims adjuster for the NFIP 

are at least 4 consecutive years of full-time property loss adjusting 

experience, attendance each year at an NFIP adjuster workshop, and 

demonstration of knowledge of the standard flood insurance policy by 

passing a written examination. In 2002, FEMA modified the minimum 

experience requirement to allow adjusters who do not have the requisite 

experience to work with a seasoned flood adjuster until the write-yourown company determines that the adjuster is able to work independently. 

Claimants who have questions or concerns about actions taken to resolve 

their claims have several avenues of recourse. Claims amounts may be 

adjusted after the initial settlement is paid if claimants submit 

documentation that some costs to repair or replace damaged items were 

higher than estimated. If a claimant is not satisfied with the adjuster’s 

answers or does not agree with decisions, the claimant or the write-yourown company can request FEMA’s program contractor for assistance in 

reaching a resolution by conducting a special assistance reinspection of 

the claim. Also, under provisions of the Flood Insurance Reform Act of 

2004, claimants may contact FEMA directly to resolve concerns that were 

not addressed through the other channels. Finally, claimants may bring a 

claim in federal district court against the insurer. 

Page 13 GAO-07-169 National Flood Insurance Program
About 40 FEMA employees, assisted by about 170 contractor employees, 

are responsible for managing the NFIP. Management responsibilities 

include establishing and updating NFIP regulations, administering the 

National Flood Insurance Fund, analyzing data to actuarially determine 

flood insurance rates and premiums, and providing 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 write-your-own companies to ensure that the NFIP is administered 

properly (i.e., appropriate claims settlements are made and program 

objectives are achieved).

Hurricane Katrina, followed closely by Hurricane Rita, had a far-reaching

impact on the financial solvency of the NFIP. By all measures, the flood 

losses were unprecedented in the history of the NFIP. FEMA projects that

when all claims are settled, claims from NFIP policyholders who suffered 

flood damage from Hurricanes Katrina and Rita will total more than 

$20 billion. In contrast, the NFIP reports that from its inception in 1968 

until August 2005, it paid a cumulative total of about $14.6 billion in 

claims. In the two largest single flood events prior to Hurricane Katrina, 

the NFIP reports that it processed a little more than 30,000 claims after a 

Louisiana flood in 1995 and Tropical Storm Allison in 2001. Figure 2 

illustrates the magnitude of the flood losses in 2005 compared to losses 

over the history of the NFIP. 

Hurricanes Katrina 

and Rita Had a FarReaching Impact on 

the Financial 

Solvency of the NFIP 

Page 14 GAO-07-169 National Flood Insurance Program
Figure 2: Total NFIP Payments to Claimants, 1972–2005

Total payments made (dollars in millions)

Source: FEMA.

Calendar year

0

2

4

6

8

10

12

14

16

18

20

22

24

1972-1976

1977

199

1999

2000

2001

2002

2003

2004

2005

8

19

1990

1991

1992

1993

1994

1995

1996

1997

89

1988

1987

1986

1985

1984

1983

1982

1981

1980

197

1979

8

FEMA projection

Not only were the total cost and number of Hurricane Katrina and Rita 

claims far greater than in prior flood events, the amount paid per loss was 

also greater. As shown in figure 3, the average amounts paid per claim for 

Hurricanes Katrina and Rita flood damages—about $94,800 and 

$46,000, respectively—were much larger than average claims amounts 

reported as paid in the 3 prior years. Average paid losses for Hurricane 

Katrina were about three times the average paid losses reported by the 

NFIP for damage from flood events in 2004, including Hurricanes Charley,

Ivan, Frances, and Jeanne in Florida and other East Coast and Gulf Coast 

states. 

Page 15 GAO-07-169 National Flood Insurance Program
Figure 3: Average Loss Payments for Hurricanes Katrina and Rita and Flood Events 

from 2002 to 2004 

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Dollars in thousands

Source: GAO analysis of NFIP data.

Katrina Rita 2002 2003 2004

94,803

46,055

16,878 19,980

30,668

Flood event

As a result of the number and amount of claims for damages from the 2005 

hurricane season and particularly Hurricane Katrina, losses to be paid far 

exceeded the NFIP’s existing borrowing authority with the U.S. Treasury. 

The borrowing authority was subsequently increased from $1.5 billion 

before Hurricane Katrina to $18.5 billion in November 2005, and then to 

$20.8 billion in March 2006 to pay claims and expenses from Hurricane 

Katrina and other 2005 hurricanes. As of September 30, 2006, FEMA’s debt 

to the Treasury was $16.9 billion. As we reported in January 2006, it is 

unlikely that FEMA will be able to repay a debt of this size and pay future 

claims in a program that generated premium income of about $2 billion in 

fiscal year 2005.19

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. However, by design, the program is not 

actuarially sound because federal law authorized subsidized insurance 

rates to be made available for policies covering some properties to 

 19See GAO-06-335T. 

Page 16 GAO-07-169 National Flood Insurance Program
encourage communities to join the program. As a result, the program does 

not collect sufficient premium income to build reserves to meet the longterm future expected flood losses. 

In November 2006, legislation was pending in both houses of Congress to 

reform the NFIP. A Senate provision would forgive the NFIP debt and bills 

in both houses had provisions to improve the financial solvency of the 

program and reduce the extent of the federal government’s exposure for 

losses in catastrophic loss years. For example, proposed legislation in 

both the Senate and the House of Representatives contain provisions that 

would allow premium increases of up to 15 percent annually on NFIP 

policies, up from the current cap of 10 percent on premium increases. 

Additionally, legislation in both houses of Congress would phase out 

subsidized rates for some properties built before flood insurance rate 

maps were put into effect in their communities, including nonresidential 

properties and those that are not primary residences. However, none of 

the proposals, if enacted, would make changes to the NFIP that would 

result in collecting enough premium income to cover losses for any future

flood events of the magnitude of Hurricane Katrina. 

Until the 2004 hurricane season, FEMA had been generally successful in 

keeping the NFIP on sound financial footing, exercising its borrowing 

authority three times in the last decade when losses exceeded available 

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

According to FEMA officials, as of August 31, 2005, FEMA had outstanding 

borrowing of $225 million with cash on hand totaling $289 million. FEMA 

had substantially repaid the borrowing it had undertaken to pay losses 

incurred for the 2004 hurricane season, which, until Hurricane Katrina 

struck, had been the worst hurricane season on record for the NFIP. 

FEMA’s current debt with the Treasury is almost entirely for payment of 

claims from Hurricanes Katrina and Rita and other flood events that 

occurred in 2005. 

Most NFIP Loss Claims 

Were in Louisiana for 

Primary Residences in 

Special Flood Hazard 

Areas 

As shown in figure 4, the majority of NFIP claims for flood damage from 

Hurricane Katrina were in Louisiana, and a large portion of the Louisiana 

Hurricane Katrina claims were in New Orleans. 

Page 17 GAO-07-169 National Flood Insurance Program
Figure 4: Hurricane Katrina Losses by Location

Note: Number of claims rounded to the nearest thousand. 

Page 18 GAO-07-169 National Flood Insurance Program
As of May 2006, the NFIP had paid about 162,000 claims for losses from 

flood damage from Hurricane Katrina in Alabama, Florida, Louisiana, and 

Mississippi. About 135,000 of these losses (about 83 percent) were in 

Louisiana. As of July 2006, about 83,500 Louisiana claims were made for 

property damage in the New Orleans area, where flood waters breached 

levees and floodwalls. Almost 9,000 additional NFIP claims, over 7,000 of 

them from Louisiana, were paid as a result of losses from Hurricane Rita. 

Tables 1 and 2 provide a state-by-state breakdown of the number of paid 

losses, the number of losses paid at policy limits, and the average payment

amounts per loss for Hurricanes Katrina and Rita, through May 2006. 

Table 1: Hurricane Katrina Loss Information by State (as of May 31, 2006) 

State 

Number of 

paid losses

Amount paid

(dollars in 

millions)

Number of 

losses paid at 

policy limits

Average loss 

payment

Alabama 4,915 $257.4 633 $54,374

Florida 5,382 109.4 19 20,319

Louisiana 134,829 12,635.3 66,140 93,713

Mississippi 16,939 2,362.2 11,593 139,454

Total 162,065 $15,364.3 78,385 $94,803

Source: GAO analysis of NFIP data. 

Table 2: Hurricane Rita Loss Information by State (as of May 31, 2006)

State 

Number of 

paid losses

Amount paid

(dollars in 

millions)

Number of 

losses paid at 

policy limits

Average loss 

payment

Louisiana 7,251 $360.9 2,264 $49,767

Texas 1,603 46.9 80 29,264

Total 8,854 $407.8 2,344 $46,055

Source: GAO analysis of NFIP data. 

The majority of Hurricane Katrina and Rita paid losses were for flood 

damage to residences. About 96 percent of Hurricane Katrina paid losses 

and about 94 percent of Hurricane Rita paid losses were for residential 

properties including condominiums, while 4 percent and 6 percent of the 

paid losses, respectively, were for nonresidential properties including 

businesses and public buildings (i.e., schools and churches). 

Page 19 GAO-07-169 National Flood Insurance Program
As shown in figures 5 and 6, the majority of paid losses for 

noncondominium residential properties were for principal residences.20

About 16 percent of paid claims for residences damaged by Hurricane 

Katrina were nonprincipal residences, which include secondary homes. 

About 18 percent of paid losses for residences damaged by Hurricane Rita 

were for nonprincipal residences. See appendix II for detailed information 

on principal and nonprincipal residential paid losses by state. 

Figure 5: Hurricane Katrina Paid Losses for Principal and Nonprincipal 

Noncondominium Residential Properties (as of May 31, 2006) 

83%

Nonprincipal residences

(24,511)

Principal residences

(126,881)

1%

Unknown

(1,481)

Source: GAO analysis of NFIP data.

16%

Note: Nonprincipal residences include secondary homes. “Unknown” indicates that claims folders did 

not provide information on the type of residence that could be captured in the NFIP statistical 

database. 

 20Condominiums are not included because condominium associations are required to

purchase policies to insure condominium buildings. Individual unit owners may elect to 

purchase separate policies for coverage on the contents of their units (i.e., furniture and 

electronic equipment).

Page 20 GAO-07-169 National Flood Insurance Program
Figure 6: Hurricane Rita Paid Losses for Principal and Nonprincipal

Noncondominium Residential Properties (as of May 31, 2006) 

78%

Nonprincipal residences

(1,486)

Principal residences

(6,476)

4%

Unknown

(323)

Source: GAO analysis of NFIP data.

18%

Note: Nonprincipal residences include secondary homes. “Unknown” indicates that claims folders did 

not provide information on the type of residence that could be captured in the NFIP statistical 

database. 

Most of the paid losses were for properties located within the special flood 

hazard areas where homeowners with mortgages from federally regulated

lenders are required to purchase flood insurance on their dwellings for at 

least the amount of their outstanding mortgage. As shown in figure 7, 

about 78 percent of the paid losses for Hurricane Katrina through May 

2006, were in special flood hazard areas subject to flooding or flooding and 

wave action where purchase of flood insurance is mandatory on 

properties with mortgages from federally regulated lenders. However, 

claims were also paid on 36,325 losses (about 22 percent) on properties 

outside of the special flood hazard areas where purchase of flood 

insurance is optional. As shown in figure 8, of 8,851 paid loses for 

Hurricane Rita through May 2006, 6,746 (about 76 percent) were in special 

flood hazard areas. 

Page 21 GAO-07-169 National Flood Insurance Program
Figure 7: Hurricane Katrina Claims Paid In and Out of Special Flood Hazard Areas 

(as of May 31, 2006) 

78%

Out of special flood hazard areas

(36,325)

In special flood hazard areas

(125,694)

Source: GAO analysis of FEMA data.

22%

Note: We could not determine the flood zone for 46 additional claims. However, we have determined 

that these data are sufficiently reliable for the purposes of our analysis. 

Figure 8: Hurricane Rita Claims Paid In and Out of Special Flood Hazard Areas (as 

of May 31, 2006) 

76%

Out of special flood hazard areas

(2,105)

In special flood hazard areas

(6,746)

Source: GAO analysis of FEMA data.

24%

Note: We could not determine the flood zone for 3 additional claims. However, we have determined 

that these data are sufficiently reliable for the purposes of our analysis. 

Page 22 GAO-07-169 National Flood Insurance Program
While homeowners who live in specially designated flood hazard areas are 

required to purchase NFIP insurance on their dwellings at least for the 

amount of any federally regulated mortgage, the purchase of coverage for

the home’s contents, including furniture and personal property, is optional 

and may be purchased separately. NFIP policyholders who live in, for 

example, rental units, cooperatives, or condominium buildings may elect

to purchase NFIP policies for contents coverage only. Figures 9 and 

10 show that most paid Hurricane Katrina and Hurricane Rita residential 

losses were for both dwellings and contents. See appendix III for detailed 

information on residential paid losses for dwellings and contents by state. 

Figure 9: Hurricane Katrina Paid Residential Losses for Dwellings and Contents (as 

of May 31, 2006) 

25%

Contents only

(13,482)

Building only

(38,937)

Building and contents

(102,493)

Source: GAO analysis of NFIP data.

66%

9%

Note: Includes condominiums 

Page 23 GAO-07-169 National Flood Insurance Program
Figure 10: Hurricane Rita Paid Residential Losses for Dwellings and Contents (as of 

May 31st, 2006) 

44%

Contents only

(424)

Building only

(3,620)

Building and contents

(4,264)

Source: GAO analysis of NFIP data.

51%

5%

Note: Includes condominiums 

The magnitude and severity of the damages from Hurricane Katrina closely 

followed by Hurricane Rita presented FEMA and its private sector NFIP 

partners with challenges to accurately process a record number of flood 

claims in a timely manner under adverse conditions and address other 

needs of NFIP claimants and communities. 

FEMA and Private 

Sector NFIP Partners 

Were Challenged to 

Process a Record 

Number of Claims and 

Address the Needs of 

NFIP Claimants and 

Communities 

Officials Described 

Challenges to Processing 

Flood Claims 

Challenges to addressing the needs of NFIP claimants after Hurricane 

Katrina were not limited to managing and processing a record volume of 

claims for damage in four Gulf Coast states. An official of FEMA’s NFIP 

contractor described some of the adverse conditions faced by NFIP and 

Page 24 GAO-07-169 National Flood Insurance Program
write-your-own company officials and flood adjusters after Hurricane 

Katrina: 

“A month after Hurricane Katrina, our adjusters couldn’t get to flooded properties 

because roadways were blocked by debris and houses were contaminated by 

flood waters. In many cases, adjusters could not even identify the houses they 

were trying to inspect because street signs were washed away and houses were 

piled on top on one another as a result of the storm surge. Adjusters went to some 

addresses only to find nothing left standing but the foundation. Making contact 

with claimants was in some cases impossible because they were scattered across 

the country and relocating frequently from one temporary address to another. In

many cases, the documentation we normally use to adjust claims no longer 

existed. Claimants’ files at local insurance agencies, mortgage records, and other

documents were gone in the flood.” 

According to a representative of FEMA’s program contractor on-site in 

Hammond, Louisiana, about 8,000 adjusters were working on claims from 

Hurricanes Katrina and Rita at the high point, from October through 

December 2005. An owner of a firm that specializes in insurance claims 

adjustments for catastrophes described the problems he faced in getting

adjusters to the affected areas. The majority of adjusters who worked 

under contract for this firm were staying in Mobile, Alabama, a 21⁄2- to 

3-hour drive from the New Orleans area. Highways were jammed, and 

lodging and fuel were in short supply. The business owner said that he 

bought more than 30 houses in the Mobile area, several tanker trucks of 

oil, and a gas station to meet adjusters’ housing and transportation needs.

Figure 11 shows photographs of flooded neighborhoods that illustrate 

some of the challenges faced by flood adjusters in getting to and 

identifying the heavily damaged houses they were assigned to inspect. 

Page 25 GAO-07-169 National Flood Insurance Program
Figure 11: Flood Adjusters Were Challenged to Get To and Identify Heavily Damaged Houses 

Top left: Access to a flooded New Orleans

neighborhood was limited for weeks after 

Hurricane Katrina. Top right: Homes that were 

heavily damaged by storm surge were difficult to 

locate and identify. Bottom: A bridge in Empire, 

La., was closed almost 60 days after Hurricane 

Katrina came through the area. 

Source: FEMA. Source: FEMA.

Source: FEMA.

Page 26 GAO-07-169 National Flood Insurance Program
Despite the large volume of claims and adverse conditions for settling 

them, the NFIP was successful in closing 92 percent of NFIP claims for 

Hurricane Katrina and 86 percent for Hurricane Rita by March 2006, about 

71⁄2 months after the storms struck. By May 2006, about 9 months after the 

storms, FEMA reported that over 95 percent of the Gulf Coast claims were 

closed. These time frames for closing claims are comparable to time 

frames for closing claims in other, smaller flood events. For example, in 

Florida, where the largest number of claims for flood damage were filed in

the 2004 hurricane season, the NFIP closed about 88 percent of the 

33,888 claims from Hurricanes Charley, Ivan, Frances, and Jeanne within 

7 months and about 92 percent within 9 months. 

Concerns from claimants about actions taken to settle their claims were 

relatively few in relation to the large number of claims filed. For example, 

as of April 2006, 13 appeals had been filed by claimants related to 

settlements of their claims for Hurricane Katrina damage, and no appeals 

had been filed on claims for damage from Hurricane Rita. In February 

2006, FEMA’s program contractor had received about 500 requests for 

special assist reinspections. These requests occur when claimants and 

insurance companies do not agree on aspects of the claims adjustment and 

ask for assistance in reaching a resolution. FEMA was not able to provide 

comparison data from prior years or updated information on the number 

of appeals filed after April 2006 and the number of special assist 

reinspections for Hurricanes Katrina and Rita after February 2006. 

Over 95 Percent of Claims 

Were Closed within 9 

Months with Relatively 

Few Complaints 

FEMA Approved the Use 

of Expedited and Square 

Foot Claims Adjustment 

Methods Unique to 

Hurricane Katrina 

To try to assist NFIP policyholders despite many obstacles, FEMA 

approved expedited claims processing methods that were unique to 

Hurricanes Katrina and Rita. In some circumstances, claims could be 

adjusted without site visits by certified flood claims adjusters. For flooding

from Lake Pontchartrain in New Orleans caused by the failure of the 

levees, FEMA allowed the use of aerial and satellite photography and flood 

depth data to identify structures that had been severely affected. If data on

the depth and duration of the water in the building showed that it was 

likely that covered damage exceeded policy limits, the claim could be 

settled without a site visit by a claims adjuster. Similarly, for some other 

losses in Louisiana, Alabama and Mississippi, FEMA authorized claims 

adjustments without site visits where structures were washed off of their 

foundations by flood waters and square foot measurements of the 

dwellings were known. While FEMA authorized the use of these 

approaches, the write-your-own companies made the decision on whether 

they wished to use expedited processes to adjust claims. In addition, 

FEMA authorized the use of a square foot measurement methodology for 

Page 27 GAO-07-169 National Flood Insurance Program
homes that had been flooded off of their slabs, pilings, or posts. In those 

instances, damages could be calculated by a certified flood adjuster based 

on measurements of room dimensions and classification of building 

materials as high, medium, or low level, rather than a room-by-room, itemby-item calculation of loss amounts. FEMA authorized payments to its 

private insurance company partners of $750 per expedited claim 

adjustment—a lower fee than would have been paid for a more timeconsuming room-by-room, line-item-by-line-item visual assessment of 

flood damage. 

According to the FEMA director of NFIP claims, about 17,200 claims for 

damage, mostly from Hurricane Katrina (about 11 percent of all Hurricane 

Katrina claims), were adjusted using expedited procedures. Although a 

relatively small number of claims were adjusted using expedited 

processes, officials of FEMA, its program contractor, representatives of 

two of the five private insurance companies we interviewed, and a flood 

claims adjusting service official said that having the option to do some 

expedited adjustments enabled the NFIP to keep up with demands for 

adjuster services and close the claims as quickly as it did. 

Representatives of the three insurance companies we visited that did not 

use expedited processes to a significant extent said they did not do so for 

reasons including concerns over the accuracy of flood depth data, delays 

in the availability of flood depth data, and because their companies did not 

write homeowners’ policies on the dwellings in question, they lacked 

necessary information (i.e., square foot measurements of the home) that 

were needed to process claims without site inspections. 

According to the FEMA director of NFIP claims, two large write-your-own 

insurance companies developed models that were approved by FEMA for 

use in making square foot estimates of damage for some claims from 

Hurricanes Katrina and Rita instead of sending certified flood adjusters to 

the sites to assess and document damage room by room and item by item. 

According to the FEMA official, the square foot models paid claims based 

on the square footage of the property and a classification of the building 

materials as low, middle, or high level. For example, claims paid on a 

flooded high-level kitchen would be more than payments for a middle-level 

kitchen of the same square footage. If one or two high-end items were in a

middle-level home (i.e., a custom front door or exotic hardwood floors), 

an adjustment to the middle-end rate would be made for those specific 

items. According to the official, the NFIP had experimented briefly with a 

much less sophisticated approach to square foot estimating about 10 years 

ago but had not used any form of claims adjusting since that time other 

Page 28 GAO-07-169 National Flood Insurance Program
than the traditional approach of sending a certified flood adjuster to the 

site to assess damage and estimate losses with required reports, work 

sheets, and photographs to document damage room by room and line item 

by line item. 

The director of NFIP claims said that FEMA did not track the number of 

estimates done using the square foot method. He said that FEMA plans to 

examine the accuracy of the models carefully and consider using them for 

other catastrophic flooding events in the future. Because usage of the 

square foot method by the two companies with approved models was not 

carefully tracked during Hurricanes Katrina and Rita, FEMA paid the same 

fee for square foot adjustments as it did for regular line-item-by-line-item 

adjustments that took longer to perform and required more extensive 

documentation. However, the director of NFIP claims said that if the 

square foot methodology is approved for future use, the fee schedule paid

for these adjustments would probably be lower than the current schedule 

for regular claims adjustments, with a resulting savings for the NFIP. 

In addition to approving expedited and square foot claims adjusting 

methods, FEMA took several other actions to expedite claims adjustments 

and meet the needs of claimants in the aftermath of Hurricanes Katrina 

and Rita. These were actions that, according to officials, FEMA had also 

used to a more limited extent in prior large flood events. Specifically, 

FEMA 

• waived the requirement that property owners furnish proof of loss 

statements that list their losses for all Hurricane Katrina and Rita 

claims, 

• allowed telephone adjustments for some claims below $25,000, 

• established special toll-free telephone lines to assist policyholders 

who had questions about filing claims, 

• liberalized adjuster training requirements to deploy more adjusters 

to flood-damaged areas, and 

• authorized insurance companies and independent flood adjusting 

firms to use adjusters who did not meet FEMA’s minimum flood 

certification requirements provided that they worked under the 

direction of seasoned adjusters until the company certified that they 

were trained. 

Page 29 GAO-07-169 National Flood Insurance Program
As part of its floodplain management strategy, FEMA policies encourage 

the elevation or removal of damaged properties from the floodplain.21 In 

addition to paying claims for flood damage, NFIP policies pay up to 

$30,000 to owners of substantially damaged or repetitive loss properties 

for the cost of taking mitigation actions such as elevation, floodproofing, 

relocation or demolition, in order to comply with state or local floodplain

management laws or ordinances. The payments are made under the 

increased cost of compliance (ICC) coverage of the standard flood 

insurance policy. As a first step to making claims for this coverage, 

adjusters are required to file preliminary damage assessment forms with 

FEMA for properties that may be substantially damaged. Figure 12 shows 

renovations in process on a New Orleans house that is being elevated to 

mitigate against future flood damage using ICC coverage to pay some of 

the costs. 

NFIP Adjustment Process 

Will Continue with Claims 

for Help to Elevate or 

Remove Substantially 

Damaged Properties 

 21A property is considered to be “substantially damaged” if the cost of repairing the 

property exceeds 50 percent of its market value (or a lower trigger if adopted locally), as

determined by a state or community declaration. 

Page 30 GAO-07-169 National Flood Insurance Program
Figure 12: A New Orleans House Is Elevated Using ICC Coverage to Pay Some 

Costs 

Source: FEMA.

This New Orleans house is in the process of being elevated above the base flood elevation adopted 

by the community after flooding from Hurricane Katrina. The homeowner received the ICC benefit 

included with his NFIP policy to cover some of the costs of elevating the house 11 feet to comply with 

the local floodplain management ordinance.

As of April 26, 2006, adjusters had completed almost 50,000 preliminary 

damage assessment forms for properties flooded by Hurricane Katrina and 

a little more than 1,000 forms for properties flooded by Hurricane Rita. 

Over 40,000 of the forms for damage in the two storms were for properties 

located in Louisiana. Through May 2006, FEMA had made ICC payments of 

about $7 million on Hurricane Katrina and Rita claims. Anticipating a large 

number of ICC claims as a result of the 2005 hurricane season, FEMA 

increased the time frame for property owners to complete the mitigation 

actions from 2 years to 4 years after a state or community issued a 

substantial damage declaration. In an upcoming revision to the standard 

flood insurance policy, FEMA plans to make permanent the increase in 

time for property owners to complete work and receive ICC payments. 

Page 31 GAO-07-169 National Flood Insurance Program
In addition to approving new methods for expedited processing of some 

NFIP claims after Hurricane Katrina, FEMA also took new steps to guide 

communities’ rebuilding efforts. For the first time, FEMA issued advisory

guidance on coastal flood elevations that communities can use in the 

reconstruction process until more detailed data become available. 

According to FEMA officials, this guidance—called advisory base flood 

elevations—was necessary because a risk assessment showed that base 

flood elevations in effect for coastal Louisiana and Mississippi did not 

reflect the true risk to the areas from flooding. According to a FEMA 

official, FEMA expects to have updated rate maps for coastal areas by

early 2007 so that communities can begin the process of considering to 

adopt them. 

FEMA Issued Advisory 

Base Flood Elevations to 

Guide Rebuilding Efforts 

in the Aftermath of 

Hurricanes Katrina and 

Rita 

Accurate flood maps that identify the areas at high risk of flooding are the 

foundation of the NFIP, and the flood maps for some areas of the Gulf 

Coast affected by Hurricanes Katrina and Rita were out of date. The maps 

identify base flood elevation levels—the height at which there is a 

1 percent chance of a flood occurring in a given year, also known as the 

100-year flood. FEMA uses the 100-year flood as the standard for setting 

premium rates and requirements for NFIP. 

Prior to Hurricanes Katrina and Rita, FEMA was conducting a coastal 

study of hurricane storm flooding as a part of its map modernization 

program.22 According to a FEMA official, the agency was about to issue 

several new preliminary flood insurance rate maps in the Gulf Coast 

region when the storms hit. However, the storm surges from Hurricanes 

Katrina and Rita far exceeded the base flood elevations in many areas of 

the Gulf Coast, raising questions about the validity of the base flood 

elevations and current flood insurance rate maps. In response, FEMA 

conducted risk assessments using the most current and accurate flood risk 

data available. The analyses incorporated storm data from the past 

35 years, including data from Hurricanes Katrina and Rita, tide (water 

level) gauge data, and other engineering studies. The analyses showed that 

base flood elevations on the flood insurance rate maps in effect for coastal 

Louisiana and Mississippi did not reflect the true risk from flooding 

because the elevations were between 1 and 9 feet too low. Also, the 

 22FEMA embarked on a multiyear map modernization program to update the nation’s flood

maps at a cost in excess of $1 billion. The goal of the program is to update the nation’s 

inventory of flood insurance rate maps that identify areas of risk of flooding and determine 

flood insurance rates. They are also used for floodplain management and mitigation 

activities. 

Page 32 GAO-07-169 National Flood Insurance Program
analyses showed that higher storm surges and larger waves can be 

expected to spread farther inland than previously estimated because of 

land subsidence and the loss of the protective coastal barrier over the past 

10 to 20 years. On completion of the risk analyses, FEMA issued advisory

base flood elevation maps for 15 parishes in Louisiana and 3 counties in 

Mississippi that took into account the more accurate and up-to-date flood 

hazard data. (See app. III for a list of the communities for which the 

advisories were issued and the status of the communities’ consideration of 

their adoption.) 

FEMA cannot require communities participating in the NFIP to use the 

advisory base flood elevations. According to FEMA, it issued the 

advisories to parishes and counties, and individual communities within 

those jurisdictions can decide whether or not or to what extent they will 

adopt the guidance. For example, the City of Gulfport, Mississippi, 

adopted the advisories in September 2006 to protect citizens from future 

floods but extended the official adoption of the new elevations to 

November 1, 2006, to allow residents wishing to rebuild to less stringent 

elevation requirements in effect prior to the adoption of the advisories 

adequate time to secure building permits. The New Orleans city council

approved FEMA’s new advisories but made exceptions for properties in 

the French Quarter and other national historic structures in the city and 

those listed with the Historic Districts Landmarks Commission.23

Lafourche Parish, Louisiana, rejected the advisory because the parish 

council considered some advisory map data to be wrong, determined that 

adopting the advisory would have a high negative economic impact on 

homeowners, and noted that the advisory information was intended to be

only advisory and preliminary. 

However, FEMA has provided incentives for individual homeowners and 

communities to rebuild using the advisory standards. For example, FEMA 

requires that rebuilding projects it funds, through public assistance or 

mitigation grants, be built to advisory standards. Similarly, FEMA grants 

for repairing and rebuilding public infrastructure such as schools, 

libraries, and police stations will not be available to communities unless 

they rebuild to advisory base flood elevations. NFIP policyholders who 

live in communities that have flood plain management standards that 

 23Under the NFIP, communities may exempt historic buildings from NFIP substantial 

improvement and substantial damage requirements by issuing variances for historic 

structures.

Page 33 GAO-07-169 National Flood Insurance Program
exceed the minimum standard are eligible for discounts on their 

premiums. ICC payments to NFIP claimants that take steps to reduce their 

risk from future flood damage will help cover the elevation of homes to 

the advisory base flood elevation if that standard is adopted by the 

community. FEMA has also warned communities that continued use of 

flood data on current flood insurance rate maps could result in residential 

and commercial buildings that will be vulnerable to flood damage because 

they will not be built high enough or have the structural integrity to resist 

flood forces that may be encountered in future large events. 

According to a FEMA official, the agency expects to have updated, 

preliminary flood insurance rate maps for the coastal parishes and 

counties in Louisiana and Mississippi by early 2007. However, the maps 

will become effective only after a formal appeals process and community 

adoption; a process that normally takes a minimum of 2 years to complete. 

Once the new flood insurance rate maps are adopted, they will supersede 

all advisory base flood elevations issued by FEMA. 

As in previous flood events, FEMA’s primary method of monitoring and 

overseeing claims adjustments and addressing concerns from claimants 

was its quality reinspection program. As of August 2006, FEMA’s program 

contractor had conducted quality assurance reinspections of 

4,316 Hurricane Katrina and Rita claims. In addition, FEMA formed a 

special task force to reinspect an additional 1,696 claims that were 

adjusted using expedited processes. Because FEMA did not reinspect a 

random sample of all claims closed, as we recommended in October 2005,

the results of the reinspections cannot be projected to a population larger 

than the 4,316 claims reinspected. As a result, FEMA is unable to 

determine the overall accuracy of the claims closed. FEMA’s Deputy 

Director of the Mitigation Division said that FEMA agrees with our 

recommendation and plans to do quality reinspections in future flood 

events based on a random sample of the population of all claims. Neither 

FEMA nor its program contractor analyzed the overall results of the 

4,316 quality reinspections for Hurricanes Katrina and Rita to identify the 

total number of payment errors and the magnitude of those errors. FEMA 

did not have a requirement that the overall results of the reinspections for 

flood events be analyzed. In our review of a statistically valid sample of 

740 of the 4,316 reinspection reports, claims payment errors were 

identified in about 14 percent of the Hurricane Katrina reinspections of 

claims adjusted using regular processes, in about 1 percent of the 

reinspections of Hurricanes Katrina and Rita claims adjusted using 

expedited methods of claims adjustments, and 2 percent of Hurricane Rita 

Results of Monitoring 

and Oversight of 

Claims Payments 

Were Inconclusive 

because FEMA Did 

Not Reinspect a 

Statistically Valid 

Sample of Claims 

Page 34 GAO-07-169 National Flood Insurance Program
reinspections of claims adjusted using regular processes. Because, in the 

past, FEMA has had neither an appropriate sampling methodology nor a 

requirement that an analysis be done of overall results of claims 

adjustments done after every flood event, we do not know how the error 

rates we identified compare to adjusting errors in reinspection reports for 

other smaller flood events. 

General Adjusters and 

Disaster Analysts Did 

Quality Reinspections of 

About 2.5 Percent of All 

Claims and Additional 

Reinspections of Claims 

Adjusted Using Expedited 

Processes 

To determine whether claims were correctly adjusted by the large cadre of 

adjusters deployed after Hurricanes Katrina and Rita, FEMA’s program 

contractor conducted quality assurance reinspections of 4,316 Hurricane 

Katrina and Rita claims conducted from January to September 2006. The 

number of reinspections done was slightly smaller than the goal 

established by FEMA for the percentage of reinspections to be completed. 

However, FEMA officials told us in a briefing at the conclusion of our 

audit work that 5,198 reinspections had been completed. FEMA’s director 

of NFIP claims said that the program contractor was to reinspect about

3 percent of all claims, about the same percentage of reinspections done 

after other flood events. In addition, the contractor was to review at least

10 percent of the expedited claims done by each insurance company that 

decided to use expedited processing procedures for some claims. 

Reinspection reports completed as of September 2006 represented about 

2.5 percent of all Hurricane Katrina and Rita claims that were closed by

May 2006. Reinspection reports were completed for just over 10 percent of 

the 17,200 claims closed using expedited processes. 

The quality assurance reinspections are a standard oversight procedure 

after all flood events and are generally done by general adjusters who, in 

addition, are responsible for estimating damage from flood events, 

coordinating claims adjustment activities at disaster locations, and 

conducting adjuster training. When we did audit work for our October 

2005 report, nine general adjusters were employed by FEMA’s program 

contractor. Four general adjusters were on board after Hurricanes Katrina

and Rita, according to the general adjuster in charge. According to FEMA, 

one reason for the loss of general adjusters was that several left to work as 

independent adjusters or for adjusting firms to earn higher pay adjusting 

claims for Hurricanes Katrina and Rita. To supplement the general 

adjuster workforce, FEMA’s program contractor hired 22 temporary 

employees. 

In addition to overseeing the regular quality reinspection program of 

4,136 reinspections of Hurricanes Katrina and Rita claims adjusted using 

regular processes and expedited methods, FEMA formed a special task 

Page 35 GAO-07-169 National Flood Insurance Program
force of 15 adjusters and supervisors to review and reinspect additional 

claims closed using expedited methods. FEMA officials said that they took

this action because the expedited methods had not been used to adjust 

claims in prior flood events, so they wanted to have additional information 

on the accuracy of payments made. 

Quality Reinspection 

Program Does Not Rely on 

a Statistically Valid 

Sampling Methodology 

FEMA did not adopt our October 2005 recommendation that it select the 

claims to be reinspected in its quality reinspection program using a 

random sample of the population of all claims.24 Instead, according to the 

general adjuster in charge of Hurricanes Katrina and Rita, selection of 

claims to reinspect was based upon judgmental criteria including, among 

other items, the size and location of loss and complexity of claims. The 

general adjusters used their judgment to select what they thought were the

more challenging claims adjustments for reinspection under the premise 

that if difficult adjustments are done accurately, more routine adjustments 

should be handled properly, as well. 

The process the general adjuster described is a nonprobability sampling 

process rather than random sampling. In nonprobability sampling, staff 

selected a sample based on their knowledge of the population’s 

characteristics. The major limitation of this type of sampling is that the 

results cannot be generalized to a larger population, because there is no 

way to establish, by defensible evidence, how representative the sample is. 

A nonprobability sample is therefore not appropriate to use is to 

generalize about the population from which the sample is taken. 

After discussion, FEMA agreed with GAO’s recommendation that it 

implement an approach for random sampling. The Deputy Director of 

FEMA’s Mitigation Division said that FEMA plans to do quality 

reinspections in future flood events based on a random sample of the 

universe of all claims. The official advised that FEMA was not able to 

implement the October 2005 recommendation in the aftermath of 

Hurricanes Katrina and Rita because other priorities to meet the needs of 

claimants and communities took precedence. 

Because the judgmental criteria were used in selecting reinspections to be 

done, the results of FEMA’s NFIP quality reinspection program for 

Hurricanes Katrina and Rita cannot be projected to a larger universe than

 24See GAO-06-119. 

Page 36 GAO-07-169 National Flood Insurance Program
the claims adjustments sampled. As a result, FEMA is unable to determine 

the overall accuracy of claims settled for these flood events—an action

that is necessary to meet GAO’s internal control standard that FEMA have 

reasonable assurance that program objectives are being achieved and its 

operations are effective and efficient.

25

Limited Information 

Available on the Overall 

Results of the Quality 

Reinspections 

Of FEMA’s 4,316 claims reinspections, 2,565 (about 59 percent) were for 

claims adjustments done using regular processes that included on-site 

visits by a certified flood adjuster to assess damages, while 1,751 (about 

41 percent) were reinspections of claims adjusted using the expedited 

methods that FEMA authorized to settle some claims at policy limits 

without site visits by flood adjusters. FEMA’s program contractor did not 

analyze the overall results of its quality reinspection program for 

Hurricanes Katrina and Rita, another action that is necessary to meet our 

internal control standard that FEMA have reasonable assurance that 

program objectives are being achieved and its operations are effective and 

efficient. FEMA’s director of NFIP claims said that FEMA does not 

generally require the program contractor to prepare and analyze reports of 

the overall results of quality reinspections after flood events. According to

officials of FEMA and its program contractor, in addition to preparing 

written reports of each quality assurance reinspection, general adjusters 

discuss the results of the reinspections they perform with insurance 

company officials that process the claims. If a general adjuster determines 

that an expense was allowed that should not have been covered, the 

company is to reimburse the NFIP. If a general adjuster finds that the 

private sector adjuster missed a covered expense in the original 

adjustment, the general adjuster will take steps to provide additional 

payment to the policyholder. According to officials of FEMA and its 

program contractor, quality assurance reinspections are forwarded from 

general adjusters to the program contractor, where results of 

reinspections are to be aggregated in a reinspection database and the 

resolution of overpayments and underpayments is tracked. 

According to the FEMA director of NFIP claims, a special task force of 

adjusters and supervisors reinspected 1,696 expedited claims from 

Hurricane Katrina in addition to the reinspections conducted in the quality 

reinspection program and found a total of 81 erroneous payments (about 

5 percent). FEMA will take action to recover overpayments of claims 

 25GAO, Policy Manual (Washington, D.C.: Jan. 1, 2004). 

Page 37 GAO-07-169 National Flood Insurance Program
where it is appropriate to do so. The official also stated that a report on 

the results of the task force review was being prepared, but it was not 

completed during the course of our review. We did not analyze data from 

the special task force as part of our review of a sample of quality 

reinspection reports. 

Because the NFIP’s quality reinspection program does not rely on a 

statistically valid sampling methodology, like FEMA, we are unable to 

project the results of our reviews of 740 reinspection reports to the 

population of all claims closed. However, because our sample is a 

probability sample of all 4,316 reinspections claims, are able to project our 

estimates to this population of claims reinspections. 

Our review of 320 of the quality reinspection reports done for Hurricane 

Katrina regular process claims found that reinspectors identified problems 

in 119 instances (about 37 percent).26 In most instances where quality 

reinspections identified problems with the original claims adjustments, 

reinspectors determined that the claims payment amounts were correct 

but that files did not meet NFIP standards (e.g., they did not include all

supporting documentation). However, 44 of the 320 quality reinspection 

reports we reviewed for Hurricane Katrina claims adjustments that used 

regular processes (about 14 percent) identified claims overpayments or 

underpayments. Payment errors identified in our review included 

8 underpayments that ranged from more than $131,000 to $543 and 

36 overpayments that ranged from $65,000 to $86. For the expedited 

process reinspection reports, we identified problems in about 12 percent 

(39 of 320) reports we reviewed. However, reinspectors identified 

erroneous overpayments in only 4 of these instances (about 1 percent). 

These payment errors were all overpayments that ranged from $40,000 to

$80,000. On the basis of our review of 100 Hurricane Rita reinspections, we 

estimate that about 2 percent of the reinspections identified erroneous 

payments. These payment errors were between $9,000 and 

$10,000. Because, in the past, FEMA has had neither an appropriate 

sampling methodology nor a requirement for an overall analysis claims 

adjustment done after every flood event, we do not know how the error 

rates we identified compare to adjusting errors identified in reinspections 

 26These estimates are based on a probability sample and are subject to sampling error. For 

Hurricane Katrina regular process reinpsections and Hurricanes Katrina and Rita claims 

processed using expedited methods, we are 95 percent confident that the actual percentage

is within +/- 5 percentage points of our estimates. More information about precision of 

estimates is contained in appendix I.

Page 38 GAO-07-169 National Flood Insurance Program
of claims from other smaller flood events. See appendix IV for the 

complete results of our review of 740 quality reinspection reports for 

claims adjustments after Hurricanes Katrina and Rita. 

Since we last reported in October 2005, FEMA has moved forward on 

implementation of the Flood Insurance Reform Act of 2004.27 However, 

there is still progress to be made. Among other things, the act mandated 

FEMA to (1) develop supplemental materials for explaining NFIP coverage 

and the claims process to policyholders when they purchase and renew 

policies; (2) establish, by regulation, an appeals process for claimants; and 

(3) establish minimum training and education requirements for flood 

insurance agents in cooperation with the insurance industry, state 

insurance regulators, and other interested parties and publish the 

requirements in the Federal Register.

28 The statutory deadline for the three 

mandates was December 30, 2004. The act also authorized FEMA to create 

a pilot program to provide financial assistance to states and communities 

to carry out activities including elevating and demolishing structures that 

have suffered severe and repeated damage from flooding.29 The act 

authorized the use of funds from the National Flood Insurance Fund for 

the pilot program for fiscal years 2005 through 2009. FEMA has fully 

implemented the first two requirements to establish notifications on 

coverage to policyholders and an appeals process for claimants. With 

regard to the training and education requirements, FEMA published 

training and education requirements in the Federal Register, stating that it

intended to implement the standards through existing state licensing 

schemes for insurance agents. Though FEMA has taken a number of 

actions to improve the training and education of agents that sell NFIP 

policies, only 15 states implemented mandatory training and education 

requirements as of October, 2006 and as we reported in October 2005, 

FEMA has not established how or when states are to begin imposing 

education and training requirements. Finally, FEMA has not created a pilot 

program to mitigate damage to severe repetitive loss properties. 

FEMA Has Made 

Progress 

Implementing NFIP 

Program Changes in 

the Flood Insurance 

Reform Act of 2004 

 27See GAO-06-119. 

28Pub. L. No. 108-264, §§ 202, 203, 204 (codified at 42 U.S.C. § 4011 note (2004)) (requiring

FEMA to develop informational materials); Pub. L. No. 108-264, § 205 (codified at 42 U.S.C.

§ 4011 note (2004)) (requiring FEMA to establish appeals process); Pub. L. No. 108-264, 

§ 207 (codified at 42 U.S.C. § 4011 note (2004)) (requiring FEMA to establish and publish 

minimum training and education requirements). 

29Pub. L. No. 108-264 at § 102 (codified at 42 U.S.C. § 4102a (2004)). 

Page 39 GAO-07-169 National Flood Insurance Program
For purposes of explaining coverage and the claims process to 

policyholders, the Flood Insurance Reform Act of 2004 required FEMA to 

develop three types of informational materials. The required materials are 

(1) supplemental forms explaining in simple terms the exact coverage 

being purchased; (2) an acknowledgment form that the policyholder 

received the standard flood insurance policy and any supplemental 

explanatory forms, as well as an opportunity to purchase coverage for 

personal property; and (3) a flood insurance claims handbook describing 

the process for filing and appealing claims. FEMA officials said that 

acknowledgment forms and new insurance program forms to explain 

coverage to policyholders when they purchase and renew their insurance 

were final as of September 2005. FEMA posted a flood insurance claims 

handbook, dated July 2005, on its Web site in September 2005. The 

handbook contains information on anticipating, filing, and appealing a 

claim. The Director of the FEMA Mitigation Division, which oversees the 

NFIP, said that FEMA distributed the NFIP Summary of Coverage and 

Flood Insurance Claims Handbook to help policyholders affected by

Hurricane Katrina through the claims process. The materials were 

available in disaster recovery and flood response offices and were 

distributed in town meetings. In addition, according to a representative of 

FEMA’s program contractor on-site in Hammond, Louisiana, some flood 

adjusters provided copies of the documents to claimants to help to explain 

the processes for filing claims and resolve any disagreements about the 

claims settlement. 

Informational Materials to 

Explain Coverage and the 

Claims Process Are 

Completed 

Formal Appeals Process in 

Place 

An appeals process that FEMA officials described as informal was in place 

for claimants after Hurricane Katrina and was described in the Flood 

Insurance Claims Handbook that FEMA posted on its Web site in 

September 2005. As we have stated in this report, 13 appeals were filed by

claimants related to settlements of their NFIP claims as a result of 

Hurricane Katrina damage, and no appeals were filed for damage resulting 

from Hurricane Rita, as of April 2006. To establish a formal appeals 

process, FEMA published an interim rule in the Federal Register that 

became effective in June 2006.30 Comments made in the Additional Views 

section of the Senate report on the Flood Insurance Reform and 

Modernization Act of 2006, a bill pending in Congress as of November 

2006, outlined concerns that the rule was not specific on the structure of 

 30See Appeal of Decisions Relating to Flood Insurance Claims, 71 Fed. Reg. 30,294 (May 26, 

2006). 

Page 40 GAO-07-169 National Flood Insurance Program
the appeals process. After a public comment period, a final rule was 

published on October 13, 2006.31 The final rule included more specific 

elements on the structure of the appeals process in the final rule than were

contained in the interim rule. For example, the final rule stated that FEMA 

will provide policyholders with an acknowledgment of receipt of an 

appeal, which will also provide the policyholder with a point of contact 

within FEMA to get information on the status of the appeal, and that 

FEMA is subject to a 90-day deadline to resolve appeals and issue a 

written appeal decision to the policyholder and insurer. The final 

regulation also provided examples of the types of documentation that 

policyholders should include in their appeals. 

Some States Have 

Established Minimum 

Education and Training 

Requirements 

With respect to the requirement that FEMA establish minimum education 

and training requirements for agents who sell NFIP policies, the Flood 

Insurance Reform Act of 2004 requires FEMA, in cooperation with the 

insurance industry, state insurance regulators, and other interested 

parties, to establish minimum training and education requirements for all 

insurance agents who sell flood insurance policies and to publish the 

requirements in the Federal Register. On September 1, 2005, FEMA 

published a Federal Register notice in response to this requirement.32 In 

the notice, FEMA stated that rather than establish separate and perhaps 

duplicative requirements from those that may already be in place in the

states, it had chosen to work with the states to implement NFIP 

requirements through already established state licensing schemes for 

insurance agents. To that end, FEMA provided suggested language for 

state legislation to require a prelicensing demonstration of knowledge of 

flood insurance and a onetime, 3-hour continuing education course 

requirement for existing licensees. FEMA further provided a course 

outline for flood insurance agents, which consisted of eight sections: an 

NFIP Overview; Flood Maps and Zone Determinations, Policies and 

Products Available, General Coverage Rules, Building Ratings, Claims 

Handling Process, Requirements of the Flood Insurance Reform Act of 

2004, and Agent Resources. FEMA also offered incentives to agents who 

completed NFIP training to encourage adoption of the minimum 

standards. 

 31See Appeal of Decisions Relating to Flood Insurance Claims, 71 Fed. Reg. 60,435 (Oct. 13, 

2006) 

32See Flood Insurance Training and Education Requirements for Insurance Agents, 70 Fed. 

Reg. 52,117 (Sept. 1, 2005). 

Page 41 GAO-07-169 National Flood Insurance Program
For fiscal years 2006 and 2007, FEMA adopted performance measures for 

meeting “the objective of the mandate that agents selling flood insurance 

are trained and provide good information to consumers.” The performance 

measures center on FEMA activities to encourage agent training activities,

but do not establish milestones for states to implement the minimum 

training requirements. Specifically, the performance measures are to 

• increase by 7 percent over the previous year the number of 

insurance agents who complete the NFIP Bureau’s flood insurance 

training, either live or online; 

• submit a new online training module to states for continuing 

education credit approval, with approval by 40 states by fiscal year 

2008; 

• encourage write-your-own companies to do their part to ensure 

their agents are sufficiently trained, and 

• foster state adoption of mandatory agent training requirements 

through continued communication with departments of insurance, 

offering technical assistance, and so forth. 

In working toward the final performance measure, FEMA held meetings 

and conferences with state legislators and insurance regulators, as well as 

insurance company officials, and worked with the National Association of 

Insurance Commissioners to develop a model bulletin that state insurance 

commissioners may issue to implement the minimum training 

requirements.33

As of October 2006, only 15 states had established minimum training and 

education requirements for insurance agents that sell NFIP policies.34 Two 

states had issued advisory notices, and 1 state had established standards 

for a continuing education course in flood insurance but had not made the 

course mandatory. As we reported in October 2005, FEMA has not 

developed milestones for state adoption of minimum training and 

education requirements. See appendix V for a listing of the state actions 

taken. 

 33NAIC Model Bulletin, available at 

http://www.naic.org/Releases/2006_docs/flood_bulletin.htm. 

34Ten of the 15 states that implemented minimum training standards did so through 

bulletins or advisory opinions, which provide guidelines for insurance agents.

Page 42 GAO-07-169 National Flood Insurance Program
As of October 2006, FEMA had not implemented the pilot program 

authorized by the act to help reduce the inventory of NFIP properties that

have sustained repeated severe flood losses. As noted in the report of the 

Senate Committee on Banking, Housing, and Urban Affairs accompanying 

the legislation, an important purpose of the act is to address the problem 

of severe repetitive loss properties, which are properties that have been 

flooded numerous times and are thus a financial drain on the NFIP.35 The 

act authorizes financial assistance to states and communities that decide

to participate in the pilot program to carry out mitigation activities that 

reduce flood damages to severe repetitive loss properties.36 The act 

authorizes the transfer of up to $40 million per fiscal year for fiscal years

2005 through 2009 from the NFIP Fund for the pilot program, and funds 

for the program were appropriated in fiscal year 2006. States and 

communities may use funds under this program for the mitigation of 

severe repetitive loss properties. Mitigation actions may include purchase, 

relocation, demolition, elevation, or flood-proofing structures, as well as 

minor physical localized flood control projects. Funds may also be used by 

states and communities to purchase severe repetitive loss properties. 

FEMA officials noted that they had made progress in developing the 

program guidance and implementing regulations for the pilot program and 

plan to combine the fiscal years 2006 and 2007 appropriations and begin 

funding projects under the pilot program in fiscal year 2007. 

By the measures of number of claims filed, amount of claims paid, losses 

per claim, and debt incurred, Hurricane Katrina was an unprecedented 

event for the NFIP that created challenges to process a record number of 

claims and address needs of claimants and communities that experienced

grave losses. FEMA approved new methods of adjusting some Hurricane 

Katrina and Rita claims, issued advisory opinions to aid in rebuilding after 

these flood events, and took other actions to address the needs of NFIP 

claimants and communities. 

FEMA Has Not Established 

a Pilot Program to Mitigate 

Damage to Severe 

Repetitive Loss Properties 

Conclusions 

However, the importance of FEMA taking additional actions to enhance 

the value of its monitoring and oversight processes is also illustrated in the 

 35S. Rep. No. 108-262, at 2-3 (2004). 

36The act defines single-family severe repetitive loss properties as those for which four or 

more separate NFIP claims payments exceeding $5,000 have been made and the cumulative 

amount of the claims exceeds $20,000, or at least two separate claims payments have been

made which, cumulatively, exceed the value of the property. 42 U.S.C. § 4102a(b)(1) (2004). 

Page 43 GAO-07-169 National Flood Insurance Program
aftermath of Hurricanes Katrina and Rita. Not only did these flood events 

involve billions more dollars and hundreds of thousands more claims for 

the NFIP than any previous flood event since the program’s inception, but 

they also involved new claims-processing methods that, if proven to result

in accurate claims adjustments, could lower NFIP payments for claims 

adjustments as compared to fees paid for the more time-consuming roomby-room, line-item-by-line-item visual assessments of flood damage that 

the NFIP had exclusively relied upon for all prior flood events. FEMA’s 

current use of quality assurance reinspections to discuss individual results 

and specific adjustment errors with insurance company officials and seek

reimbursements for overpayments is too limited to meet our internal 

control standard that it have reasonable assurance that program objectives 

are being achieved and its operations are effective and efficient. For future 

flood events, when FEMA conducts its quality assurance reinspection 

program for claims adjustments using the statistically valid sampling 

methodology we previously recommended, the agency will be well 

positioned to broaden the scope of its analyses to determine the overall

results of claims adjustments done for each future flood event, including

the number and type of claims adjustment errors that occurred. 

FEMA made progress in implementing provisions of the Flood Insurance 

Reform Act of 2004. However, our recommendation that FEMA establish 

milestones for meeting provisions of the act remains open. In October 

2005, we recommended that FEMA develop a documented plan with 

milestones for ensuring that agents that sell NFIP policies meet minimum 

training and education requirements. FEMA has taken a number of 

actions, including outreach to the states, to encourage the implementation

of minimum training standards. However, given the somewhat slow 

progress among states to adopt mandatory training requirements, we 

continue to think that FEMA should elaborate on the state implementation 

performance measure by developing a documented plan with milestones 

for state adoption of minimum training and education requirements and 

our recommendation related to the minimum training and education 

requirements remains open.

To strengthen and improve FEMA’s monitoring and oversight of the NFIP, 

including ensuring that claims payments are accurately determined, we are 

recommending that for future flood events when FEMA implements our 

prior recommendation to do quality assurance reinspections of a 

statistically valid sample of claims adjustments, the Secretary of the 

Department of Homeland Security also direct the Under Secretary of 

Homeland Security, FEMA, to take the following action: 

Recommendation for 

Executive Action 

Page 44 GAO-07-169 National Flood Insurance Program
• Analyze the overall results of claims adjustments done for each 

future flood events to determine the number and type of claims 

adjustment errors made and to help determine whether new, 

cost-efficient methods for adjusting claims that were 

introduced after Hurricane Katrina are feasible to use after 

other flood events. 

On December 8, 2006, DHS provided written comments on a draft of this 

report. DHS agreed with our recommendation to improve its quality 

reinspection program and stated that it was revising its guidance 

accordingly and would use the recommended sampling and reporting 

procedures in future flood events. 

DHS reiterated a comment made in FEMA’s review of our October 2005 

report that we did not review all of the controls and processes that FEMA 

has in place to provide oversight for the NFIP. Most of the additional 

oversight and management processes and controls that FEMA has in place

are for financial management—an area not included in the scope of our 

work. Our work focused on program implementation and oversight in the 

aftermath of Hurricanes Katrina and Rita. During our review, FEMA 

managers described the quality assurance claims reinspection program as 

the primary method for overseeing the accuracy of claims adjustments for 

these flood events. As we have noted in this report, we have work under 

way to examine the cost of operating the NFIP, including fees paid for the 

services of private insurance companies and claims adjusters. For that 

report, to be issued in 2007, we plan to examine the NFIP’s financial 

management and controls. 

DHS also provided information on how it determines the number of claims 

to be reinspected in the NFIP’s quality reinspection program and 

additional information on its implementation of the requirement of the 

Flood Insurance Reform Act of 2004 to establish minimum training and 

education requirements for all insurance agents who sell flood insurance 

policies and to publish the requirements in the Federal Register. 

Agency Comments 

and Our Evaluation 

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

Homeland Security, the Director of the Federal Emergency Management 

Agency 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 

Page 45 GAO-07-169 National Flood Insurance Program
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 VII. 

William O. Jenkins, Jr. 

Director, Homeland Security and Justice Issues 

Page 46 GAO-07-169 National Flood Insurance Program
List of Congressional Committees: 

The Honorable Richard Shelby 

Chairman 

The Honorable Paul Sarbanes 

Ranking Minority Member 

Committee on Banking, Housing, and Urban Affairs 

United States Senate 

The Honorable Michael Oxley 

Chairman 

The Honorable Barney Frank 

Ranking Minority Member 

Committee on Financial Services 

House of Representatives 

The Honorable Susan M. Collins 

Chairman 

The Honorable Joseph I. Lieberman 

Ranking Minority Member 

Committee on Homeland Security and Governmental Affairs 

United States Senate 

The Honorable Peter T. King 

Chairman 

The Honorable Bennie G. Thompson

Ranking Minority Member 

Committee on Homeland Security 

House of Representatives 

The Honorable Tom Davis 

Chairman 

The Honorable Henry A. Waxman 

Ranking Minority Member 

Committee on Government Reform 

House of Representatives 

Page 47 GAO-07-169 National Flood Insurance Program
Appendix I: Scope and Methodology Appendix I: Scope and Methodology 

To describe the impact of Hurricanes Katrina and Rita on the National 

Flood Insurance Program (NFIP) and the extent of the losses paid by 

location and property type, we reviewed congressional actions to increase 

the NFIP borrowing authority, and we interviewed the Director, Deputy 

Director, and other officials of the Federal Emergency Management 

Agency’s (FEMA) Mitigation Division on the actions they took to estimate 

the amount of funds they needed to borrow from the U.S. Treasury to 

cover claims from Hurricanes Katrina and Rita and other 2006 flood 

events. We compared claims payments for losses from Hurricanes Katrina 

and Rita to payments for losses from past flood events. We also analyzed 

statistical data from the NFIP data system on claims payments for 

Hurricanes Katrina and Rita. We analyzed the data on losses paid by state,

for principal and nonprincipal residential properties, within and outside of

special flood hazard areas, and by type of coverage (i.e., building, 

contents, or both building and contents). We updated our reliability 

assessment of the statistical data base reported in October 2005 by

interviewing database managers to discuss any system changes that would 

have an impact on data reliability and by replicating statistical analyses by 

the NFIP to determine their accuracy.

1

 We determined that the database 

was sufficiently reliable for our reporting purposes. We did our analyses 

and reliability testing of FEMA statistical data that were current through 

May 31, 2006, when FEMA reported that over 95 percent of Hurricane 

Katrina and Rita claims were closed.

To describe the challenges FEMA and its private sector partners faced and 

the results of their efforts to process flood claims resulting from 

Hurricanes Katrina and Rita and address the needs of NFIP claimants and 

communities, we interviewed headquarters and field officials of FEMA and 

its program contractor. We also conducted semistructured interviews 

based on our judgment with insurance industry officials involved in the 

recovery effort and visited areas impacted by Hurricane Katrina in New 

Orleans, Louisiana, and Bayou La Batre, Alabama. Interviewees included 

the owner of a firm that specializes in insurance claims adjustments for 

catastrophes, representatives of the three insurance companies that closed 

the largest number of Hurricane Katrina and Rita NFIP claims, and a 

representative of an insurance company that was not a major NFIP insurer 

for the Gulf Coast claimants but did process some claims. Their views are 

not representative of the universe of all insurance industry officials 

involved in the flood recovery effort. We also analyzed statistical data on 

 1

See GAO-06-119. 

Page 48 GAO-07-169 National Flood Insurance Program
Appendix I: Scope and Methodology 

the number of appeals filed by claimants and requests made for 

reinspections by FEMA’s program contractor to assist claimants and 

insurance companies in reaching resolutions on disputes. We reviewed 

documentation and talked with officials about new, expedited methods of 

claims processing FEMA approved. We examined preliminary data on

claims that may be filed for coverage under the standard flood insurance 

policy for up to $30,000 for some property owners to take actions to 

reduce their risk of future flood damage. Finally, we examined 

documentation and interviewed FEMA officials on the status of efforts to 

provide guidance to communities and property owners to assist in 

recovery and rebuilding efforts and reviewed documentation on the status

of communities’ actions to adopt FEMA’s advisory base flood elevation 

standards. 

To assess FEMA’s role in monitoring and overseeing the NFIP and the 

results of that oversight, we interviewed officials of FEMA and its program 

contractor who were involved in the quality assurance reinspections of 

claim adjustments done for Hurricanes Katrina and Rita and documented

the number of reinspections performed and the methodology used to 

select claims for reinspection. We reviewed documentation of FEMA’s 

procedures for monitoring and overseeing claims adjustments. We 

observed a disaster analyst for FEMA’s program contractor performing 

several quality assurance reinspections in Bayou La Batre. We followed up

on the status of our prior recommendation for improvements in the quality 

assurance reinspection program and discussed actions taken or planned to

implement it.2

 We selected a statistically valid sample of 740 reinspection 

reports done for Hurricanes Katrina and Rita to review to determine, 

among other things, errors that were identified in the claims adjustments. 

Using a data collection instrument, we reviewed the results of these 

randomly selected reinspection reports of Hurricane Katrina and Rita 

claims to determine whether reinspectors identified errors, including 

overpayment, underpayments, or adjustments that did not meet NFIP 

standards (i.e. did not contain appropriate documentation). 

Table 3 shows the number of quality assurance reinspection reports of 

claims adjustments done using regular processes we examined, including 

site visits by flood adjusters and expedited methods FEMA approved for 

some Hurricane and Rita claims. 

 2

See GAO-06-110. 

Page 49 GAO-07-169 National Flood Insurance Program
Appendix I: Scope and Methodology 

Table 3: Number of FEMA Quality Assurance Reinspection Reports and the Sample 

We Reviewed, by Process Type and Flood Event 

Process type/flood event 

Number of FEMA 

reinspection reports

Number of reinspection

reports we reviewed

Regular process claims adjustments 

for Hurricane Katrina 

2,258 320

Regular process claims adjustments 

for Hurricane Rita 

307 100

Expedited methods for Hurricanes 

Katrina and Rita

1,751 320

Total 4,316 740

Source: GAO.

To assess the status of FEMA’s efforts to implement provisions of the 

Flood Insurance Reform Act of 2004 after Hurricanes Katrina and Rita, we 

interviewed officials and examined documentation of the actions FEMA 

took. We also analyzed FEMA’s actions to determine whether they met the 

legal requirements of the act. 

We conducted our work in accordance with generally accepted 

government auditing standards from December 2005 through November 

2006. 

Page 50 GAO-07-169 National Flood Insurance Program
Appendix II: Statistical Information on NFIP Appendix II: Statistical Information on NFIP Claims Paid for Hurricanes Katrina and Rita 

Claims Paid for Hurricanes Katrina and Rita 

Table 4: Hurricane Katrina Principal and Nonprincipal Residential Paid Losses by 

State (as of May 31, 2006) 

State 

Principal 

residence 

Nonprincipal

residence Unknown

Alabama 2,350 1,904 13

Florida 4,497 584 0

Louisiana 107,960 18,739 1,263

Mississippi 12,074 3,284 205

Total nonondominium residential 126,881 24,511 1,481

Source: GAO analysis of FEMA data. 

Table 5: Hurricane Rita Principal and Nonprincipal Residential Paid Losses by State 

(as of May 31, 2006) 

State 

Principal 

residence 

indicated

Nonprincipal

residence 

indicated Unknown

Louisiana 5,191 1,287 313

Texas 1,285 199 10

Total noncondominium residential 6,476 1,486 323

Source: GAO analysis of FEMA data. 

Page 51 GAO-07-169 National Flood Insurance Program
Appendix II: Statistical Information on NFIP 

Claims Paid for Hurricanes Katrina and Rita 

Table 6: Hurricane Katrina Paid Residential Losses for Dwellings and Contents by 

State (as of May 31, 2006) 

State 

Coverage for 

dwelling only

Coverage for 

contents only

Coverage for dwelling

and contents

Alabama 2,606 90 1,861

Florida 2,202 98 2,913

Louisiana 30,404 12,876 85,867

Mississippi 3,725 418 11,852

Total 38,937 13,482 102,493

Source: GAO analysis of FEMA data 

Table 7: Hurricane Rita Paid Residential Losses for Dwellings and Contents by 

State (as of May 31, 2006) 

State 

Coverage for 

dwelling only

Coverage for 

contents only

Coverage for dwelling

and contents

Louisiana 3,117 368 3,326

Texas 503 56 938

Total 3,620 424 4,264

Source: GAO analysis of FEMA data. 

Page 52 GAO-07-169 National Flood Insurance Program
Appendix III: Parishes and Counties Where 

FEMA Issued Advisory Flood Elevation Appendix III: Parishes and Counties Where Guidance 

FEMA Issued Advisory Flood Elevation 

Guidance 

Table 8: Parishes and Counties Where FEMA Issued Advisory Flood Elevation 

Guidance

Louisiana parishes

Calcasieu, Cameron, Iberia, Jefferson, Lafourche, Orleans, 

Plaquemines, St. Bernard, St. Charles, St. John the Baptist, 

St. Mary, St. Tammany, Tangipahoa, Terrebonne, Vermillion

Mississippi counties Hancock, Harrison, Jackson 

Source: FEMA. 

At the time of our review, 11 of the 15 Louisiana parishes where FEMA 

issued advisory flood elevation guidance had adopted FEMA’s advisories. 

Two parishes, St. John the Baptist and Lafourche, had decided not to 

adopt the advisories; and two others, Plaquemines and St. Bernard, were 

considering them. The Lafourche Parish council rejected the advisory 

because it considered some advisory map data to be wrong and 

determined that adopting the advisory would have a high negative 

economic impact on homeowners. The council also noted that the 

advisory information was intended to be only advisory and preliminary. 

Fourteen cities within the 3 Mississippi counties where FEMA issued 

advisory flood elevation guidance had taken some new action to guide 

rebuilding efforts. 

Page 53 GAO-07-169 National Flood Insurance Program
Appendix IV: R

Random S

H

esults of GAO Review of a

election of Reinspection Reports for 

urricanes Katrina and Rita 

Page 54 GAO-07-169

Appendix IV: Results of GAO Review of a 

Random Selection of Reinspection Reports 

for Hurricanes Katrina and Rita 

Figure 13: Results of GAO Review of Quality Reinspections of Hurricanes Katrina

and Rita Claims Processed Using Expedited Procedures

Did not meet NFIP standards

(35)

1%

Claims overpayments

(4)

No problems identified

(281) 

Source: GAO.

88%

11%

National Flood Insurance Program
Appendix IV: Results of GAO Review of a

Random Selection of Reinspection Reports for 

Hurricanes Katrina and Rita 

Figure 14: Results of GAO Review of Quality Reinspections of Hurricane Katrina 

Claims Processed Using Regular Claims Adjustment Procedures 

23%

Could not determine

(15)

3%

Claims underpayments

(8)

Did not meet NFIP standards

(75)

Claims overpayments

(36)

No problems identified

(186) 

Source: GAO.

58%

5%

11%

Note: In instances in which reinspectors did not complete reinspection reports. We were unable to 

determine whether they identified problems. 

Page 55 GAO-07-169 National Flood Insurance Program
Appendix IV: Results of GAO Review of a

Random Selection of Reinspection Reports for 

Hurricanes Katrina and Rita 

Figure 15: Results of GAO Review of Quality Reinspections of Hurricane Rita 

Claims Processed Using Regular Claims Adjustment Procedures 

94%

2%

Claims overpayments

(2)

1%

Could not determine

(1)

No problems identified

(94) 

Source: GAO.

3%

Did not meet NFIP standards

(3)

Note: In instances in which reinspectors did not complete reinspection reports. We were unable to 

determine whether they identified problems. 

Page 56 GAO-07-169 National Flood Insurance Program
Appendix V: State Actions on Training of Appendix V Agents That Sell NFIP Policies : State Actions on Training of 

Agents That Sell NFIP Policies 

States That Have Taken Action Regarding Training of Agents that Sell NFIP Policies (as of October 2006) 

State Action taken

Delaware Department of Insurance required agents authorized to write homeowners or personal lines of insurance to 

complete a 2-hour continuing education course on flood insurance and the NFIP. 

Iowa Commissioner of Insurance required agents who sell flood insurance to comply with the minimum training and 

education requirements and demonstrate that compliance upon request of the Commissioner. 

Kansas Commissioner of Insurance required agents who sell flood insurance to complete a onetime, 3-hour course 

related to the NFIP, beginning with license renewals on January 1, 2007.

Kentucky Office of Insurance issued advisory opinion stating requirement that agents selling NFIP policies complete a 

onetime, 3-hour course related to the NFIP. 

Louisiana Legislature required a onetime, 3-hour course on flood insurance to be completed by agents authorized to write 

property and casualty lines of insurance for initial licensure and/or license renewal. 

Maine Superintendent of Insurance directed licensed insurance agents who sell NFIP policies to comply with the 

minimum training and education requirements and demonstrate that compliance upon request of the bureau. 

Maryland Department of Insurance required property casualty insurance producers who sell flood insurance to complete 

at least two of their required continuing education credits in flood insurance by September 30, 2006, regardless 

of when their licenses renew, and each renewal period thereafter. 

Massachusetts Commissioner of Insurance required agents licensed after April 4, 1983, who sell flood insurance to complete 

3 hours of continuing education on flood insurance by December 31, 2006.

Missouri Department of Insurance required agents who sell flood insurance to complete at least 3 hours of NFIP-related

training by December 31, 2009. 

Nebraska Department of Insurance required agents who sell flood insurance to complete a onetime, 3-hour course on 

flood insurance beginning with license renewals on January 1, 2007. 

Nevada Commissioner of Insurance directed licensed insurance agents who sell NFIP policies to complete a onetime, 3- 

hour course on flood insurance. 

North Carolina Commissioner of Insurance sent letters to insurance agents who met their 2005 continuing education 

requirements that encouraged them to take a continuing education course on flood insurance. 

Pennsylvania Insurance Department issued a notice advising insurance companies and agents of the training and education 

requirements and encouraging agents to attend NFIP flood insurance program workshops. 

Rhode Island Department of Business Regulation directed licensed insurance agents who sell NFIP policies to comply with 

the minimum training and education requirements and demonstrate that compliance upon request of the 

department. 

South Dakota Director of the Division of Insurance directed licensed insurance agents who sell NFIP policies to comply with 

the minimum training and education requirements and demonstrate that compliance upon request of the 

division. 

Texas Department of Insurance adopted new sections of its Insurance Code establishing standards for a departmentcertified continuing education course on the NFIP and flood insurance. 

Utah Commissioner of Insurance directed licensed insurance agents who sell NFIP policies to comply with the 

minimum training and education requirements and demonstrate that compliance upon request of the 

department. 

Washington Commissioner of Insurance directed agents who sell flood insurance policies to complete a onetime, 3-hour 

course on flood insurance. 

Source: FEMA. 

Page 57 GAO-07-169 National Flood Insurance Program
Appendix VI: Comments from the Department Appendix VI: Comments from the of Homeland Security

Department of Homeland Security 

Page 58 GAO-07-169 National Flood Insurance Program
Appendix VI: Comments from the Department 

of Homeland Security

Page 59 GAO-07-169 National Flood Insurance Program
Appendix VI: Comments from the Department 

of Homeland Security

Page 60 GAO-07-169 National Flood Insurance Program
Appendix VII: 

St

GAO Contact and 

aff Acknowledgments

Page 61 GAO-07-169

Appendix VII: GAO Contact and Staff 

Acknowledgments 

GAO Contact William O. Jenkins, Jr. (202) 512-8777 or jenkinswo@goa.gov 

Christoper Keisling, Assistant Director; Richard Ascarate, John Bagnulo, 

Amy Bernstein, Christine Davis, Dewi Djunaidy, Wilfred Holloway, Tracey 

King, Deborah Knorr, Jan Montgomery, Mark Ramage, and Jesus Ramoz 

made significant contributions to this report. 

Acknowledgments 

(440476) National Flood Insurance Program
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