Department of Homeland Security

Office of Inspector General 

FEMA's Implementation of the 


Flood Insurance Reform Act of 2004
 

OIG-09-45 March 2009 
Office of Inspector General 

U.S. Department of Homeland Security 

Washington, DC 20528 

March 26, 2009 

Preface 

The Department of Homeland Security (DHS) Office of Inspector General (OIG) was 

established by the Homeland Security Act of 2002 (Public Law 107-296) by amendment to 

the Inspector General Act of 1978. This is one of a series of audit, inspection, and special 

reports prepared as part of our oversight responsibilities to promote economy, efficiency, 

and effectiveness within the department. 

This report addresses the Federal Emergency Management Agency’s Implementation of the 

Flood Insurance Reform Act of 2004. It is based on interviews with employees and 

officials of relevant agencies and institutions, direct observations, and a review of 

applicable documents. 

The recommendations herein have been developed to the best knowledge available to our 

office, and have been discussed in draft with those responsible for implementation. We 

trust that this report will result in more effective, efficient, and economical operations. We 

express our appreciation to all of those who contributed to the preparation of this report 

Richard L. Skinner 


Inspector General 

Table of Contents/Abbreviations
 

Executive Summary.................................................................................1 

Background ........................................................................................................................2
 

Results of Audit..................................................................................................................5
 

Implementing the Flood Insurance Reform Act of 2004.....................................................5 


Recommendations..............................................................................................................12
 

Management Comments and OIG Analysis ......................................................................12 


Increasing Inventories of Repetitive and Severe Repetitive Loss Properties ...................13 


Recommendations..............................................................................................................20
 

Management Comments and OIG Analysis ......................................................................21 


Challenges to Mitigating Repetitive and Severe Repetitive Loss Properties ....................21 


Recommendations..............................................................................................................25
 

Management Comments and OIG Analysis ......................................................................25 


Appendices 

Appendix A: Objective, Scope, and Methodology ............................................................26 


Appendix B: Management Comments to the Draft Report ...............................................27 


Appendix C: Severe Repetitive Loss Grant Program Funding Targets.............................32 


Appendix D: Chronology of Events Regarding USACE Leased Properties .....................34 


Appendix E: Annual Increase in Repetitive Loss Properties and Claims..........................36 


Appendix F: Properties Offering Greatest Net Mitigation Benefit....................................37 


Appendix G: Repetitive Loss Properties Mitigated 1978 to 2007.....................................39 


Appendix H: Claims and Premiums of Select Severe Repetitive Loss Properties ............40 


Appendix I: FEMA’s 2000 Subsidy Reduction Plan Draft Recommendations.................42 


Appendix J: Major Contributors to this Report .................................................................43 


Appendix K: Report Distribution.......................................................................................44 


Abbreviations 

FEMA Federal Emergency Management Agency 

SQANet Simple & Quick Access Network 

USACE U.S. Army Corps of Engineers 
Executive Summary 

The Federal Emergency Management Agency (FEMA) has implemented 

key provisions of the Bunning-Bereuter-Blumenauer Flood Insurance 

Reform Act of 2004 (PL 108-264), most recently issuing program 

guidance for the severe repetitive loss grant program on January 14, 

2008. Provisions that apply actuarial flood insurance rates to certain 

river and coastal properties and expand the use of increased cost of 

compliance coverage have not been implemented. 

The number of insured repetitive loss properties in the National Flood 

Insurance Program increased from 41,443 in December 1999 to 70,226 

in December 2007. Nearly 43% of these properties, and 59% of insured 

severe repetitive loss properties, are located in Florida, Louisiana, and 

Texas. 

FEMA and its state and local partners have mitigated nearly 15,000 

repetitive loss properties since 1978, but an average of 5,188 new 

repetitive loss properties have been added each year outpacing FEMA 

mitigation efforts by a factor of 10 to 1. The number of insured 

properties annually incurring second and third flood losses has increased 

by 68% and 57%, respectively, over the past 20 years. We estimate that 

it would cost approximately $1.8 billion to mitigate through acquisition 

the current population of 8,040 severe repetitive loss properties. 

Many of the conditions we reported in 2002 regarding the challenges of 

mitigating repetitive loss properties remain today: (1) FEMA can only 

promote the notion of mitigation and cannot directly compel property 

owners in flood hazard areas to mitigate; (2) mitigation professionals 

need access to accurate information about repetitive loss properties to 

better manage the repetitive flood loss problem; and (3) the need to 

impose actuarial rates on repetitive flood loss properties is vital to the 

financial independence of the National Flood Insurance Program. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

1 
Background 

The U.S. Congress established the National Flood Insurance Program in 

1968 in response to severe flooding following a series of hurricanes in 

1963, 1964, and 1965. The key policy objectives of the National Flood 

Insurance Program were threefold: (1) reduce the Nation’s flood risk 

through floodplain management; (2) improve flood hazard data and risk 

assessment by mapping the Nation’s floodplains; and (3) make 

affordable flood insurance widely available in communities that adopt 

and enforce measures that make future construction safer from flooding. 

The National Flood Insurance Reform Act of 1994 (PL 103-325) 

contained a number of key provisions to strengthen the National Flood 

Insurance Program that: (1) established fines for mortgage lenders that 

failed to ensure the mandatory purchase of flood insurance on properties 

located in special flood hazard areas; (2) increased the coverage limits of 

National Flood Insurance Program flood insurance policies; (3) provided 

supplemental increased cost of compliance coverage to assist property 

owners with the cost of bringing flood-damaged properties into 

compliance with local ordinances; (4) established the flood mitigation 

assistance grant program to help states and communities develop and 

implement mitigation measures that reduce future flood damage; (5) 

codified the National Flood Insurance Program Community Rating 

System, which rates communities and provides them financial incentives 

to adopt floodplain management standards above those set by the 

National Flood Insurance Program; and (6) required FEMA to assess its 

flood hazard map inventory at least once every 5 years. 

The Flood Insurance Reform Act of 2004 was enacted June 30, 2004, to 

reduce or eliminate future losses to properties in the National Flood 

Insurance Program. It established the repetitive flood claims and the 

severe repetitive loss grant programs. Repetitive loss properties are 

insured properties that have incurred two or more flood losses greater 

than $1,000 within any 10-year period. A subset of these properties are 

designated severe repetitive loss properties; these are insured properties 

that have incurred four or more flood-related losses of at least $5,000 

each, or at least two separate claims with the cumulative amount of the 

building payments exceeding the value of the structures on the property. 

At least two claims under each of these scenarios must have occurred 

within any 10-year period. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

2 
FEMA’s Mitigation Directorate manages the National Flood Insurance 

Program and a range of mitigation programs designed to reduce future 

losses to homes, businesses, schools, public buildings, and critical 

facilities. The Mitigation Directorate is composed of three divisions and 

each plays a role in flood hazard mitigation. These divisions and their 

primary functions are as follows: 

�	 

�	 

�	 

The Risk Analysis Division applies engineering and planning 

practices in conjunction with advanced technology tools to 

identify hazards, assess vulnerabilities, and develop strategies to 

manage the risks associated with natural hazards. 

The Risk Reduction Division works to reduce the risk to life 

and property through implementing grant programs, ensuring 

compliance with the National Flood Insurance Program, 

identifying safe building practices, and other tools and technical 

assistance. 

The Risk Insurance Division helps reduce flood losses by 

providing affordable flood insurance for property owners and by 

encouraging communities to adopt and enforce floodplain 

management regulations that mitigate the effects of flooding on 

new and improved structures. 

The National Flood Insurance Program is administered in all 50 states by 

FEMA’s ten regional offices. FEMA provides training, technical 

assistance, and grants to communities that agree to work cooperatively 

with FEMA to identify and map flood-prone areas called special flood 

hazard areas and adopt and enforce local floodplain management 

measures and building ordinances that meet National Flood Insurance 

Program regulatory standards. 

State and local governments play a major role in coordinating FEMA 

activities within their state and also work with FEMA regional staff to 

assist communities in applying for mitigation grants. State Hazard 

Mitigation Officers and State National Flood Insurance Program 

Coordinators, working together with FEMA regional staff, assist 

communities in developing flood maps, ensuring compliance with 

floodplain requirements, regulating floodplain development, and 

upgrading local capabilities to meet National Flood Insurance Program 

standards. Community Floodplain Administrators are the front-line 

implementers of FEMA’s National Flood Insurance Program, 

responsible for ensuring compliance with all applicable floodplain 

management ordinances. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

3
 
The private sector participates actively in the National Flood Insurance 

Program by writing and servicing flood insurance policies, developing 

and maintaining the information technology infrastructure, identifying 

and mapping special flood hazard areas, and providing technical and 

consultative support to states and communities. Over 80 insurance 

companies have agreements with FEMA to sell and service flood 

insurance through the “Write Your Own” program. FEMA also relies 

on contractors to manage the repository for all National Flood Insurance 

Program policies for severe repetitive loss properties. 

Repetitive flood losses have been a major challenge for FEMA 

throughout the life of the National Flood Insurance Program. 

Historically, approximately 1% of the properties insured by the National 

Flood Insurance Program have accounted for over 30% of claims paid. 

Nearly one out of every ten homes that experienced repetitive flood 

losses had cumulative flood insurance claims that exceeded the value of 

the house. The age of the house is a key factor in this loss rate. FEMA 

estimates that 90% of all repetitive flood loss properties were built prior 

to December 31, 1974, or before the adoption of community flood 

insurance rate maps that properly reflect the probability of flooding in 

special flood hazard areas. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

4
 
Results of Audit
 

Implementing the Flood Insurance Reform Act of 2004 

FEMA issued program guidance for the severe repetitive loss grant 

program on January 14, 2008, to reduce or eliminate the long-term risk 

of flood damage to severe repetitive loss structures. The interim final 

rule for the severe repetitive loss grant program was published on 

October 31, 2007. FEMA also implemented the repetitive flood claims 

grant program on April 20, 2006, to assist communities that do not have 

the technical or financial capacity to manage mitigation activities. 

FEMA has not implemented a provision that applies actuarial flood 

insurance rates to certain coastal and riverine properties located on 

government-owned land. Many coastal and riverine properties leased 

from the federal government for private and commercial uses are located 

in high-risk hazard areas and receive subsidized flood insurance rates. 

FEMA continues to work with the U.S. Army Corps of Engineers 

(USACE), which manages the federal land where many of these 

properties are located, to identify properties that are impacted by this 

provision. 

FEMA also has not implemented a provision that expands the use of 

increased cost of compliance coverage to support mitigation projects by 

offsetting all or part of the cost share requirement. A study1 

commissioned by FEMA in 2006 revealed that property owners and 

communities that lack financial resources to share the cost of mitigation 

projects are considerably less likely to pursue mitigation. 

There are significant differences in the capacity and will of states and 

communities to mitigate flood hazards. Some states and communities 

that have experienced multiple disasters in the past decade have 

developed a hazard mitigation plan and acquired the capacity to mitigate 

flood hazards, but other communities lack the necessary expertise, 

financial resources, and will to develop a hazard mitigation plan or 

implement mitigation projects. 

1 Dr. Fraser, James, Young, Hannah, DeVries, Danny (2006, June). Mitigating Repetitive Loss Properties. 

University of North Carolina at Chapel Hill, Center for Urban and Regional Studies. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

5 
 

Severe Repetitive Loss Grant Program 

The severe repetitive loss grant program is the centerpiece of the Flood 

Insurance Reform Act of 2004 and received congressional appropriations 

of $40 million in 2006 (PL 109-090) and 2007 (PL 109-295), and $80 

million in 2008 (PL 110-161).2 FEMA officials told us the holdup in 

launching the severe repetitive loss program was due to the delay in 

receiving Congressional funding for the program and the challenge of 

developing rules and guidance for a voluntary program that leads to 

direct financial consequences for insured property owners. 

The purpose of the severe repetitive loss grant program is to reduce or 

eliminate claims under the National Flood Insurance Program through 

project activities that will result in the greatest savings to the National 

Flood Insurance Fund in the shortest period of time. The severe 

repetitive loss grant program differs from FEMA’s other mitigation 

grant programs because a property owner who declines the mitigation 

offer of assistance may experience increases to his or her National Flood 

Insurance Program insurance premium rate. 

The severe repetitive loss mitigation process occurs when FEMA has 

awarded the grant to the state and the state awards the subgrant to the 

local government. A formal offer of mitigation is extended from the 

local government to the property owner. A pre-award consultation 

process that notifies the property owner that his or her property has been 

selected for the program by the local government precedes this offer. 

Flood mitigation activities eligible under this program include: (1) 

acquisition and relocation of at-risk structures and conversion of the 

property to open space; (2) elevation of existing structures to at least the 

base flood elevation or an advisory base flood elevation or higher; (3) 

minor physical localized flood reduction projects; and (4) dry 

floodproofing for historic properties only. 

FEMA has targeted 90% of the severe repetitive loss grant program 

funds to 17 states having 51 or more severe repetitive loss properties. 

The remaining 10% of the grant program funds will be provided through 

a competitive grant process to states that have fewer than 51 severe 

repetitive loss properties. Although FEMA has targeted grant program 

funds to specific states, the designated states must meet the requirements 

of the severe repetitive loss grant program and submit a grant application 

2

 Per PL 109-295 and PL 110-161, $50 million (FY 2007) and $90 million (FY 2008) were appropriated for flood 

mitigation actions with respect to severe repetitive loss properties and repetitive insurance claims. In respect to 

repetitive insurance claims, the Flood Insurance Reform Act authorized an amount not to exceed $10 million and 

FEMA applied this amount to the repetitive flood claims grant program in both FY 2007 and FY 2008. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

6 
to receive funds. If they do not qualify or apply, funding targets are 

adjusted and the funds are made available to fulfill grant applications 

from other states. The severe repetitive loss grant program funding 

targets are in Appendix C. 

There are two key requirements outlined in FEMA program guidance 

that states and communities must meet to receive a severe repetitive loss 

program grant: (1) communities must participate in the National Flood 

Insurance Program and agree to adopt and enforce floodplain 

management ordinances; and (2) communities must have a FEMAapproved local hazard mitigation plan and be able to match up to 25% of 

the federal funding, or 10% in cases where the mitigation plan includes a 

strategy for mitigating existing and future severe repetitive loss 

properties. 

The Flood Insurance Reform Act of 2004 requires FEMA, when 

mitigating a severe repetitive loss property through acquisition, to offer 

the property owner the highest of four separate property valuations. One 

of the property valuation options considers the total amount owed by the 

owner. This valuation option could provide the property owner more 

compensation than the fair market value of the property. For example, a 

property owner with a substantial mortgage could take out an additional 

home equity loan prior to signing a pre-award consultation agreement 

with the community. The owner could potentially owe more than the 

property is worth at current fair market value, especially in light of 

recent declines in the housing market. According to the severe repetitive 

loss program guidance, FEMA is required to offer the property owner an 

amount equal to the balance of all loans secured by the property, even 

though the acquisition payment would exceed the fair market value of 

the property. 

Repetitive Flood Claims Grant Program 

In contrast to the severe repetitive loss grant program and FEMA’s other 

hazard mitigation grant programs, the repetitive flood claims grant 

program normally does not require any local cost share. FEMA may pay 

all of the mitigation costs under this program if the applicant or subapplicant demonstrates that the proposed mitigation activities cannot be 

funded under the flood mitigation assistance program due to lack of 

capacity. According to program guidance, a lack of capacity is defined 

as either an inability to manage the subgrant or lack of the 25% cost 

share. 

The purpose of the repetitive flood claims grant program is to help states 

and communities reduce flood damages to insured properties that have 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

7
 
 

had one or more claims to the National Flood Insurance Program. 

Repetitive flood claims grants are provided to eligible state, tribes, and 

territories that, in turn, provide subgrants to local governments. 

Mitigation activities eligible under this program include: (1) acquisition 

of properties, and either demolition or relocation of flood-prone 

structures, where the property is deed restricted for open spaces uses in 

perpetuity; (2) elevations; (3) dry floodproofing of nonresidential 

structures; and (4) minor localized flood control projects. Congress has 

annually appropriated $10 million to this program since 2006.3 

FEMA approved 79 properties for mitigation through the repetitive flood 

claims program in fiscal years 2006 and 2007, and 66 of these properties 

were mitigated by December 2007. Over half, or 44 of the 79 properties 

approved for funding, meet the criteria for severe repetitive loss 

designation. 

Imposing Actuarial Rates to Coastal and River Properties 

FEMA has not implemented a provision of the Flood Insurance Reform 

Act of 2004 charging risk-based premiums for certain coastal and 

riverine properties leased from the federal government. The Association 

of State Floodplain Managers testified to Congress in 1999 that large 

numbers of repetitive loss properties are located on federal land. They 

endorsed charging full actuarial rates for privately owned and leased 

buildings on federal land, believing it inappropriate for these properties 

to receive subsidized flood insurance rates without adhering to 

community regulations governing floodplain development. 

Because state and local building codes and land use ordinances do not 

generally apply to federal land, many communities cannot regulate 

floodplain development even when privately owned and leased buildings 

on federal land receive flood insurance from the National Flood 

Insurance Program. FEMA now has the authority to charge risk-based 

premiums for these properties. 

Privately owned and leased buildings on federal land are generally 

nonprimary residences such as vacation cottages. In Illinois, a majority 

of all severe repetitive loss properties are located on federal land. An 

Illinois state mitigation official told us the state is collaborating with 

FEMA and the USACE to implement risk-based premiums for river 

properties covered by the provision immediately. 

3

 See, PL 109-90, 109-295, and 110-161. Pursuant to Section 104 of the Flood Insurance Reform Act of 2004, 

Congress appropriated an amount not to exceed $10 million to this program. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

8 
The severe repetitive loss properties pictured below are located in 

Illinois on land leased from USACE. These properties, with a total 

assessed value of $83,500, have received over $293,000 in flood loss 

payments from the National Flood Insurance Program. 

Total Claims Paid: $45,715 Total Claims Paid: $58,952 

Total Claims Paid: $129,650 Total Claims Paid: $58,791 

FEMA officials told us they have not had sufficient information on 

properties located on federal lands to impose risk-based premiums. 

FEMA and the USACE are currently engaged in an effort to address 

coastal and riverine properties located on USACE-managed lands by: (1) 

comparing data from their respective databases to identify property 

owners who are obligated to pay actuarial rates according to the Flood 

Insurance Reform Act of 2004; and (2) drafting an agreement that will 

govern future development after FEMA mitigates the property through 

acquisition. FEMA officials told us they will apply actuarial rates to 

these properties as they are identified and validated beginning 

May 1, 2009. A chronology of events pertaining to USACE-leased 

properties is in Appendix D.4 

4

 Chronology provided by U.S. Army Corps of Engineers, Institute for Water Resources, April 18, 2008. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

9 
Increased Cost of Compliance Coverage 

FEMA has not expanded the use of increased cost of compliance 

coverage to offset all or part of the cost-sharing requirements for 

mitigation projects funded under the flood mitigation assistance 

program, the hazard mitigation grant program, and the pre-disaster 

mitigation grant program. Increased cost of compliance coverage is 

meant to help property owners cover the cost of bringing their property 

into compliance with certain community floodplain ordinances. FEMA 

officials told us this provision has been difficult to implement because of 

the need to revise guidance and regulations for these programs. 

The standard flood insurance policy includes a provision called 

increased cost of compliance that will pay the policyholder up to 

$30,000 to comply with state or local floodplain management laws and 

ordinances affecting repair or reconstruction of a structure suffering 

flood damage. An annual surcharge up to $75 is added to the basic 

premium to fund this provision. Mitigation activities eligible under this 

provision include elevation, flood proofing, relocation, demolition, or 

any combination of these activities. 

Prior to Congress giving FEMA the authority to expand the use of 

increased cost of compliance coverage, a home or business had to be 

damaged by flooding and the community had to determine whether the 

damage was substantial or to a point that repairs would cost 50% or 

more of the building’s pre-damage market value. The Flood Insurance 

Reform Act of 2004 expanded the use of increased cost of compliance 

coverage by allowing a community to determine substantial damage 

based on its floodplain ordinance, thereby giving the community greater 

flexibility in helping a property owner obtain funds to meet building 

requirements that reduce future flood damage. It also expanded the use 

of increased cost of compliance coverage to FEMA’s pre-disaster 

mitigation grant program, which allows a property owner to use 

increased cost of compliance coverage to mitigate flood hazards. 

A study5

 conducted by the University of North Carolina for FEMA in 

2006 revealed that homeowners were six and a half times more likely to 

mitigate when cost sharing is not required. FEMA mitigation grant 

programs generally require a non-federal cost share of at least 25% of 

eligible project costs. FEMA does not specify the source or sources of 

this cost share. It may be provided through any combination of 

resources provided by the applicant, sub-applicant, or property owner. 

5

 Dr. Fraser, James, Young, Hannah, DeVries, Danny (2006, June). Mitigating Repetitive Loss Properties. 

University of North Carolina at Chapel Hill, Center for Urban and Regional Studies. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

10 
Congress gave FEMA the authority to expand the use of increased cost 

of compliance coverage to better encourage mitigation by reducing or 

eliminating the cost-sharing requirement. FEMA officials told us they 

are currently finalizing the regulations to expand the use of increased 

cost of compliance coverage for all qualifying FEMA flood hazard 

mitigation programs. 

Capacity and Resources to Implement Mitigation Strategies 

State and local hazard mitigation officials reported wide differences in 

the capacity and will of communities to plan and implement mitigation 

strategies. This is important because flood hazard mitigation is a local 

activity. Although FEMA provides grant funds and administrative 

support, local floodplain and hazard mitigation professionals develop 

and implement the mitigation projects. When communities lack 

capacity to mitigate flood hazards, FEMA’s ability to ensure an effective 

national approach to flood hazard mitigation is diminished. 

The lack of local capacity to mitigate flood hazards takes many forms. 

In some cases, such as in New England and the Mid-Atlantic Region, 

capacity is often lacking because local governments are small and do not 

have dedicated flood hazard mitigation officials and resources. In other 

regions, communities may have experience and expertise in dealing with 

flood disasters, but lack the financial resources to meet cost sharing 

requirements. Hazard mitigation experts told us offsetting the cost share 

requirement for FEMA mitigation programs is important to encouraging 

flood hazard mitigation. 

Conclusion 

The implementation of the severe repetitive loss grant program and 

repetitive flood claims grant program fulfills two key provisions of the 

Flood Insurance Reform Act of 2004. However, we are concerned that a 

property valuation option for mitigating severe repetitive loss properties 

through acquisition could provide the property owner more 

compensation than the fair market value of the property. A provision 

that applies actuarial flood insurance rates to coastal and riverine 

properties leased from the federal government has not been fulfilled, 

which counters the intent of Congress to apply risk-based rates to these 

properties. FEMA has yet to expand the use of increased cost of 

compliance coverage, although implementation of this provision is 

particularly important to communities that lack the capacity to 

implement mitigation projects. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

11
 
Recommendations 

We recommend that the FEMA Assistant Administrator, Mitigation 

Directorate: 

Recommendation #1: Implement a process to ensure pre-award 

consultation affirms the total amount owed by the owner for loans 

secured by a recorded interest on the property is less than or equivalent 

to the current fair market value of the property. 

Recommendation #2: Apply actuarial insurance rates to properties 

located on leased federal land as they are identified and validated. 

Recommendation #3: Finalize and implement regulations to expand the 

use of increased cost of compliance coverage for all qualifying FEMA 

mitigation programs. 

Management Comments and OIG Analysis 

The Office of Program and Analysis did not concur with 

recommendation 1 and explained that program guidance was crafted to 

ensure any second mortgages or home equity loans taken out following 

the initial consultation meeting would not be included in the final offer. 

It also acknowledged our concern regarding potential discrepancies 

between fair market value and the balance of all loans. 

We recognize that program guidance stipulates that any loans secured by 

a recorded interest on the property and taken out by a property owner 

after the initial consultation meeting are not eligible, but we are 

concerned that the balance of second mortgages or home equity loans 

taken out before this meeting could exceed the fair market value of the 

property. This is especially relevant because of recent declines in the 

housing market and any discrepancy between the fair market value and 

what is owed by the property owner should be carefully considered 

before initiating a mitigation offer. 

We believe it is prudent that FEMA implement a process to ensure preaward consultation affirms the total amount owed by the owner so that 

consideration can be given to any discrepancy with fair market value. 

This is important so that acquisition projects offering the best return on 

the investment are selected among eligible properties. We consider this 

recommendation unresolved and open. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

12
 
The Office of Program and Policy Analysis concurred with 

recommendations 2 and 3. We consider these recommendations 

resolved and open because steps are being taken to implement them; 

however, these recommendations will remain open until fully 

implemented. 

Increasing Inventories of Repetitive and Severe Repetitive Loss 

Properties 

The number of repetitive and severe repetitive loss properties and 

insurance claims are steadily increasing. The annual increase in new 

repetitive loss properties is outpacing FEMA mitigation efforts by a 

factor of 10 to 1. The number of insured properties annually incurring 

second and third flood losses has increased by 68% and 57%, 

respectively, over the past 20 years. Excluding the hurricane catastrophe 

years of 2004 and 2005, the rate of increase in second flood losses is still 

over 30%. Forty-three percent of insured repetitive loss properties and 

59% of insured severe repetitive loss properties are located in Florida, 

Louisiana, and Texas. 

Insured Repetitive Loss Properties 

The number of insured repetitive loss properties increased from 41,443 

to 70,226 from December 31, 1999, through December 31, 2007. The 

total number of both insured and uninsured repetitive loss properties 

increased from 88,813 to 141,525 during the same period. Insured 

properties have a direct impact on the National Flood Insurance Program 

because flood insurance claim payments can be made on both the 

structure and its contents. FEMA tracks the number of uninsured 

repetitive loss properties to maintain awareness of the trends of 

repetitive loss properties and previous mitigation efforts. 

The number of repetitive loss claims, and the average amount of each 

claim, has increased over the last 8 years. FEMA has paid an average of 

$35,200 for 20,004 repetitive loss claims each year from 1999 to 2007, 

costing the National Flood Insurance Program $705 million annually. 

Since its creation, the National Flood Insurance Program has paid $9.1 

billion for 405,049 repetitive flood loss claims at an average claims 

payment of $22,500. The annual increase in repetitive loss properties 

and claims from 1999 through 2007 is in Appendix E and illustrated in 

the following graph. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

13 
Increase in Repetitive Loss Properties and Claims 1999 to 2007 

0 

20,000 

40,000 

60,000 

80,000 

100,000 

120,000 

140,000 

160,000 

1999 2000 2001 2002 2003 2004 2005 2006 2007 

Number of Properties 

0 

5,000 

10,000 

15,000 

20,000 

25,000 

30,000 

35,000 

40,000 

45,000 

Number of Claims 

Insured Properties Uninsured Properties Annual Claims Claims Trend 

Insured Severe Repetitive Loss Properties 

FEMA reported 8,040 validated and pending insured severe repetitive 

loss properties as of December 31, 2007. FEMA compares recorded 

data with evidence collected through site visits and examining other 

relevant data to validate a property. Those defined as pending have not 

been validated. Of the 8,040 severe repetitive loss properties, 1,088 

were pending validation at the end of 2007. The National Flood 

Insurance Program has paid a total of $1.258 billion since 1978 to settle 

44,239 severe repetitive loss claims for an average payment of $28,447 

per claim. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

14
 
The population of insured severe repetitive loss properties comprises 

single-family and multi-family residences, condominiums, vacation 

homes, and rental properties. FEMA has identified five properties with 

the highest net present value of future losses that could be avoided 

through mitigation, all beachfront condominiums. The four beachfront 

properties pictured below received $18.2 million in flood claims (in 

current dollars) from 1979 to 2005. A listing of properties offering the 

greatest net mitigation benefit6

 is in Appendix F. 

Total Claims Paid: $10 million Total Claims Paid: $4.0 million 

Total Claims Paid: $2.2 million Total Claims Paid: $2.0 million 

Owners of beachfront vacation rental properties have also received 

millions of dollars in payments from the National Flood Insurance 

Program. FEMA paid a total of $1.57 million in flood claims to the 

following four severe repetitive loss properties from 1979 to 2005. 

6

 Net mitigation benefit is a calculation by FEMA’s actuaries that estimates the current value of reduced future 

claims payments for a specific property based on the actual claims experience for the property and the average 

expected annual losses for all subsidized policies using the actuarial concept of credibility. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

15 
Total Claims Paid: $395,823 Total Claims Paid: $667,189 

Annual Premium: $1,849 Annual Premium: $1,369 

Total Claims Paid: $313,618 

Annual Premium: $1,357 

Total Claims Paid: $196,290 

Annual Premium: $342 

According to real estate listings for these properties, which are all 

located on Dauphin Island, Alabama, the summer 2008 weekly rental 

rates range from $1,475 to $3,250. There were 34 severe repetitive loss 

properties on Dauphin Island, as of December 31, 2007. 

Most severe repetitive loss properties, however, continue to be older 

primary residences, many of which are not suitable for mitigation 

actions other than acquisition. The average cost of acquiring repetitive 

loss properties through the repetitive flood claims grant program has 

averaged $223,775 per property. Applying this cost to the severe 

repetitive loss properties grant program, we estimate it would cost 

around $1.8 billion to mitigate through acquisition the current 

population of 8,040 severe repetitive loss properties. The severe 

repetitive loss grant program currently has $160 million available. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

16
 
Location of Repetitive and Severe Repetitive Loss Properties 

Severe repetitive loss properties exist in all parts of the country, but are 

concentrated in coastal and riverine areas. The map below illustrates the 

location of severe repetitive loss properties. 

Number of Severe Repetitive Loss Properties per County 

1 - 20 21 - 30 31 - 40 Over 40 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004
 

17
 
Location of Repetitive Flood Loss Properties 

December 31, 2007 

19% 

13% 

11% 

57% 

Louisiana Texas Florida All Other States 

Forty-three percent of insured repetitive loss properties, and 59% of 

insured severe repetitive loss properties, are located in Florida, 

Louisiana, and Texas. The pie charts below illustrate the top three 

locations of insured repetitive and severe repetitive loss properties in 

relation to all others. 

Location of Severe Repetitive Flood Loss Properties 

December 31, 2007 

35% 

17% 7% 

41% 

Louisiana Texas Florida All Other States: 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004
 

18
 
Increase in Second and Third Flood Losses 

The number of insured properties incurring a second and third flood 

loss has increased from the past decade. From 1988 to 1997, 3,411 

properties incurred a second flood loss and 1,597 a third. From 1998 

to 2007, 5,735 properties incurred a second flood loss and 2,489 a 

third. Excluding data from the severe 2004 and 2005 hurricane 

seasons, 4,427 properties incurred a second flood loss and 1,913 a 

third. The graph below illustrates the increase in insured properties 

incurring a second and third flood loss. 

Average Annual Number of Properties 


Incurring Second and Third Flood Loss 


0 

1,000 

2,000 

3,000 

4,000 

5,000 

6,000 

1988-1997 1998-2007 (excluding 1998-2007 (including 

2004 & 2005 data) 2004 & 2005 data) 

Insured Properties Incurring 2nd Loss Insured Properties Incurring 3rd Loss 

Increase in Repetitive Loss Properties Is Outpacing Mitigation 

An average of 5,188 new repetitive loss properties has been added to 

the National Flood Insurance Program each year since 1978. FEMA 

and its state and local partners have mitigated 14,970 repetitive loss 

properties over this time period, or around 500 a year. The net result 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

19 
is an annual increase of over 4,600 new insured repetitive loss 

properties. Because of the imbalance between incoming repetitive 

loss properties and the pace of mitigation, 28,783 new insured 

repetitive loss properties have been added to the National Flood 

Insurance Program since 1999. Based on historical trends, 

approximately 10% of these properties will become severe repetitive 

loss properties. A summary of repetitive loss properties mitigated by 

each major FEMA mitigation grant program from 1978 to 2007 is in 

Appendix G. 

FEMA estimates that mitigation of the top-tier of repetitive loss 

properties can improve the stability of the National Flood Insurance 

Fund over the long-term, by avoiding an average of $200 million per 

year in claims. However, the severe repetitive loss grant program is 

only authorized as a 5-year pilot that will end September 30, 2009. 

The $160 million for this program may not be used completely by 

this date because of the time-consuming nature of the grant 

application, review, and approval process. Additionally, a large 

percentage of repetitive loss properties are located in areas affected 

by the hurricanes of 2004 and 2005, so the availability of these 

programs during reconstruction remains important to help reduce 

future losses. Extending the duration of the severe repetitive loss 

grant program is important to addressing the increasing number of 

severe repetitive loss properties. 

Conclusion 

The number of repetitive and severe repetitive loss properties and 

insurance claims has steadily increased over the past 8 years and is 

outpacing FEMA mitigation efforts. Over a third of all repetitive and 

severe repetitive loss properties are located in Florida, Louisiana, and 

Texas. The severe repetitive loss grant program should be extended 

beyond September 2009 to use all appropriated program funds to 

mitigate as many severe repetitive loss properties as possible. 

Recommendations 

We recommend that the Assistant Administrator, Mitigation Directorate: 

Recommendation #4: Seek an extension from Congress that waives the 

termination date of the severe repetitive loss grant program until all 

appropriated funds are expended to mitigate as many severe repetitive 

loss properties as possible, and to fully assess the effectiveness of the 

pilot program. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

20
 
Management Comments and OIG Analysis 

The Office of Program and Policy Analysis concurred with our 

recommendation. We consider this recommendation resolved because 

steps are being taken to implement it; however, it will remain open until 

fully implemented. 

Challenges to Mitigating Repetitive and Severe Repetitive Loss 

Properties 

A May 2002 review7 of FEMA’s efforts to address repetitive flood loss 

revealed three conditions that remain today: (1) FEMA can only 

promote the notion of mitigation and cannot directly compel property 

owners in flood hazard areas to mitigate; (2) mitigation professionals 

need access to accurate information about repetitive loss properties to 

better manage the repetitive flood loss problem; and (3) the need to 

impose actuarial rates on repetitive flood loss properties is vital to the 

financial independence of the National Flood Insurance Program. 

Promoting and Enforcing Mitigation 

FEMA encourages mitigation by: (1) promoting awareness of the 

various hazard mitigation grants programs; (2) offering lower flood 

insurance rates for individuals that mitigate their flood risk; and (3) 

providing technical guidance and expertise to states and communities on 

how best to mitigate flood hazards. However, FEMA cannot directly 

compel property owners in flood hazard areas to mitigate their flood 

risk. FEMA has the authority to suspend a community from the 

National Flood Insurance Program for not complying with agreed-on 

floodplain management regulations, but cannot deny an individual 

policyholder insurance coverage if they choose not to mitigate. 

States and communities that participate in the National Flood Insurance 

Program can compel property owners in flood hazard areas to mitigate 

their property through enforcement of local floodplain ordinances. 

However, compelling property owners to mitigate flood risk is difficult 

because: (1) communities may lack the capacity to inspect properties 

and ensure compliance with local floodplain ordinances, particularly in 

the immediate aftermath of a flood disaster when demands on local 

resources are immense; (2) community officials are reluctant to impose 

7

 Federal Emergency Management Agency, Office of Inspector General, Inspections Division, Extent That 

Mitigation Funds Are Used to Address Repetitive Flood Loss and Other Related Issues, I-01-02, May 2002. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

21 
building restrictions on citizens wanting to repair and return to their 

homes following a disaster; and (3) many communities, particularly 

smaller and rural communities, do not have the financial and staff 

resources to identify and develop cost effective and technically feasible 

pre-disaster mitigation projects that promote compliance with floodplain 

ordinances. 

Insurance agents and flood claims adjusters that support the National 

Flood Insurance Program can also encourage mitigation by informing 

property owners of FEMA’s mitigation programs, the availability of 

increased cost of compliance funds, contact information for the local 

floodplain administrator, and the impact mitigation will have on their 

insurance premium. For example, a homeowner in Treasure Island, 

Florida, mitigated her flood risk by elevating her home above the reach 

of floodwaters and her insurance premiums dropped from $1,200 to 

$365 per year. FEMA and other mitigation professionals told us the first 

2 months after a flood disaster is a critical period to influence property 

owners to mitigate flood risk. Beyond this period, homeowners are 

likely to begin rebuilding without considering mitigation options 

because of their need or desire to return to their home. 

Effective mitigation strengthens the financial position of the National 

Flood Insurance Program by eliminating or reducing the number of 

insurance claims. FEMA estimates that $1.2 billion in flood losses are 

avoided annually because communities have implemented floodplain 

management requirements. The National Institute of Building Sciences, 

in a 2005 FEMA-sponsored study, determined that effective flood 

hazard mitigation delivers an overall benefit-cost ratio of 5 to 1.8 The 

report also noted that in addition to the direct impact, flood mitigation 

projects often lead to additional non-federally funded mitigation 

activities and have the greatest benefits in communities that have 

institutionalized hazard mitigation programs. 

A Common Mitigation Operating Picture 

FEMA and mitigation stakeholders have a limited operating picture of 

flood hazard mitigation activities and outcomes across the nation. 

Information regarding mitigation activities is currently collected and 

stored in various electronic and paper-based formats in FEMA regional 

offices, state emergency management and hazard mitigation offices, 

local and municipal government offices, insurance and claims 

adjustment company offices, and others. As a result, it is difficult for 

8

 National Institute of Building Sciences, National Hazard Mitigation Saves: An Independent Study to Assess the 

Future Savings From Mitigation Activities, 2005 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

22 
mitigation professionals to fulfill their role in advancing flood hazard 

mitigation. 

FEMA is currently transitioning its core National Flood Insurance 

Program database BureauNet to a new database called Simple, Quick, 

Access Net (SQANet). BureauNet contains the insurance and claims 

history for around 5.5 million policies. SQANet is expected to improve 

the timeliness and accuracy of insurance and claims data, as well as 

provide enhanced access and reporting features. However, SQANet is 

not designed to provide additional information helpful to mitigation 

professionals such as the property’s base flood elevation, likely source 

of flooding, potential hydrological impacts, previous mitigation 

activities undertaken or recommended, net mitigation benefit, etc. 

FEMA employs a desktop computer application, the National Flood 

Mitigation Data Collection Tool, that could provide a common operating 

picture for mitigation activities and outcomes of severe repetitive loss 

properties, but the data elements have not been fully populated and the 

application is largely underutilized. FEMA will investigate the 

opportunity to place the tool online to capture additional mitigation 

activity data. A FEMA official told us the primary intent of this 

application is to develop an effective process to select mitigation 

projects; a secondary use is to identify and correct national flood 

insurance program data inconsistencies or errors. 

A December 2007 training needs assessment conducted by FEMA’s 

Risk Reduction Division revealed that less than one fourth of 

respondents were familiar with the benefits of the National Flood 

Mitigation Data Collection Tool, and half said the purpose and benefits 

had never been conveyed to them. State and community officials that 

were part of the training needs assessment also had a number of 

concerns about the test version of SQANet and commented that SQANet 

access and navigation was neither easy nor straightforward. A FEMA 

official told us they have improved the intuitiveness of the SQANet 

portal and developed training materials for the National Flood 

Mitigation Data Collection Tool. FEMA believes these new training 

aids, which will be introduced next fiscal year, will narrow the 

knowledge gaps identified in the December 2007 training needs 

assessment. 

Subsidized Versus Actuarial Insurance Rates 

FEMA estimates that 90% of insured properties built before the 

introduction of flood insurance rate maps pay subsidized insurance 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

23
 
premiums that average 30% to 40% of the actuarial rate. These 

properties are statutorily entitled to receive subsidized insurance rates 

based on previously existing circumstances until they are substantially 

improved or damaged. Eliminating subsidized insurance rates would 

require a statutory change and affect policyholders that do not have a 

history of flooding, but it would also enhance the financial independence 

of the National Flood Insurance Program. 

It is important to recognize that exempting certain properties from 

paying risk-based rates is not a common practice in the commercial 

insurance market. The National Flood Insurance Program also differs 

from commercial insurance because it does not collect sufficient 

premium income to maintain a reserve for catastrophic flood losses. The 

National Flood Insurance Program borrowed $17.5 billion from the U.S. 

Treasury in order to pay claims and expenses following the 2005 

hurricanes. The claims received and premiums paid by select severe 

repetitive loss properties are in Appendix H. 

FEMA developed a number of alternatives in 2000 to reduce subsidized 

insurance rates. A FEMA official told us these proposals were discussed 

with congressional staff and other stakeholders and some were included 

in the President’s budget but not acted on by Congress, while some of 

the proposals have resurfaced as a result of Hurricane Katrina. FEMA 

estimates that implementing a combination of these strategies would 

reduce the subsidy rates by roughly two-thirds over 7 years.9 A 

summary of FEMA’s subsidy reduction plan is in Appendix I. 

Conclusion 

FEMA and other stakeholders encourage flood mitigation in a number of 

ways, but it is difficult to compel property owners in high-hazard areas 

to mitigate. FEMA employs a desktop computer application called the 

National Flood Mitigation Data Collection Tool that could be a useful 

tool in managing the severe repetitive flood loss grant program, if used 

fully. The National Flood Insurance Program differs from commercial 

insurance in operation and purpose. FEMA has developed alternatives 

to reduce subsidized insurance rates, but congressional action is needed 

to implement them. 

9 NFIP Subsidy Reduction Report, May 10, 2000 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

24 
Recommendations 

We recommend that the Assistant Administrator, Mitigation Directorate: 

Recommendation #5: Expand the use and utility of the National Flood 

Mitigation Data Collection Tool to all stakeholders involved in 

mitigating severe repetitive loss properties. 

Management Comments and OIG Analysis 

The Office of Policy and Program Analysis did not concur with our 

recommendation, but it did acknowledge that the National Flood 

Mitigation Data Collection Tool can be used to develop effective 

mitigation grant applications. It also noted that a soon to be released 

version of the National Flood Mitigation Data Collection Tool contains 

over 50 enhancements. 

We agree that the enhanced National Flood Mitigation Data Collection 

Tool can be used to develop effective mitigation grant applications and 

provide a common operating picture for mitigation activities and 

outcomes, particularly by mitigation professionals addressing severe 

repetitive loss properties. We consider this recommendation unresolved 

and open but will close this recommendation when FEMA provides 

evidence that the enhanced National Flood Mitigation Data Collection 

Tool has been released and is being used by all stakeholders involved 

with mitigating severe repetitive loss properties. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

25
 
Appendix A 

Objective, Scope, and Methodology 

The primary objective of our audit was to determine whether 

FEMA complied with the major provisions of the Flood Insurance 

Reform Act of 2004 and whether the strategies used by FEMA to 

reduce the number of repetitive and severe repetitive loss 

properties were effective. We conducted our audit from August 

2007 to April 2008 and reviewed agency documents, analyzed 

pertinent policies procedures, and interviewed FEMA officials and 

industry representatives. 

Our fieldwork extended to various federal, state, and local 

agencies, and nongovernmental organizations including the 

National Wildlife Federation, the Association of State Floodplain 

Managers, the Coastal States Organization, and the National 

Institute of Building Sciences. We conducted over 40 interviews 

with FEMA officials in the Mitigation Directorate, FEMA regional 

officials, state hazard mitigation officers, state National Flood 

Insurance Program coordinators, community mitigation officials, 

mitigation consultants, academic researchers, professional and 

industry representatives, attorneys, and other experts in the field. 

We also examined documentation relating to the issues addressed 

in this audit including authorizing legislation, implementing rules, 

and program guidance, and public comments and documents 

submitted during the public comment period following enactment 

of the National Flood Insurance Reform Act of 2004. We 

reviewed internal FEMA documents including strategic and 

operational plans, correspondence, analyses, and reports. We 

analyzed data and case studies for mitigation actions funded 

through the repetitive flood claims grant program. We also 

reviewed reports on various aspects of repetitive flood loss 

mitigation prepared by the Government Accountability Office, the 

former FEMA Office of Inspector General, and various public 

policy organizations. 

We acknowledge the cooperation and courtesies extended to our 

audit team during the course of this audit. We conducted this audit 

under the authority of the Inspector General Act of 1978, as 

amended, and according to generally accepted government 

auditing standards. Those standards require that we plan and 

perform the audit to obtain sufficient, appropriate evidence to 

provide a reasonable basis for our findings and conclusions based 

on our audit objectives. We believe that the evidence obtained 

provides a reasonable basis for our findings and conclusions based 

on our audit objectives. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

26 
Appendix B 

Management Comments to the Draft Report 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004
 

27
 
Appendix B 

Management Comments to the Draft Report 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004
 

28
 
Appendix B 

Management Comments to the Draft Report 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004
 

29
 
Appendix B 

Management Comments to the Draft Report 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004
 

30
 
Appendix B 

Management Comments to the Draft Report 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004
 

31
 
 

 

 

 

Appendix C 

Severe Repetitive Loss Grant Program Funding Targets 

Number of Validated 

Severe Repetitive Loss Properties 

Combined Fiscal Years 

2006, 2007, 2008 

Program Funds $160,000,000 

Administrative Expenses $6,400,000 

Program and Technical Support $8,814,628 

10% Competitive Grant Set-Aside $16,000,000 

Total $128,785,372 

Connecticut 79 $1,526,717 

Maine 4 $0 

Massachusetts 106 $2,048,507 

New Hampshire 8 $0 

Rhode Island 3 $0 

Vermont 0 $0 

FEMA Region I Total 200 $3,575,224 

New Jersey 590 $11,402,066 

New York 206 $3,981,060 

Puerto Rico 11 $0 

Virgin Islands 3 $0 

FEMA Region II Total 810 $15,383,126 

Delaware 11 $0 

District of Columbia 0 $0 

Maryland 4 $0 

Pennsylvania 243 $4,696,105 

Virginia 83 $1,604,019 

West Virginia 40 $0 

FEMA Region III Total 381 $6,300,124 

Alabama 223 $4,309,595 

Florida 479 $9,256,932 

Georgia 37 $0 

Kentucky 69 $1,333,462 

Mississippi 146 $2,821,528 

North Carolina 210 $4,058,363 

South Carolina 26 $0 

Tennessee 17 $0 

FEMA Region IV Total 1,207 $21,779,880 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

32 
Appendix C 

Severe Repetitive Loss Grant Program Funding Targets 

Illinois 57 $1,101,556 

Indiana 37 $0 

Michigan 4 $0 

Minnesota 1 $0 

Ohio 44 $0 

Wisconsin 2 $0 

FEMA Region V Total 145 $1,101,556 

Arkansas 4 $0 

Louisiana 2,578 $49,821,232 

New Mexico 0 $0 

Oklahoma 58 $1,120,881 

Texas 1,270 $24,543,431 

FEMA Region VI Total 3,910 $75,485,544 

Iowa 3 $0 

Kansas 5 $0 

Missouri 107 $2,067,832 

Nebraska 2 $0 

FEMA Region VII Total 117 $2,067,832 

Colorado 0 $0 

Montana 0 $0 

North Dakota 1 $0 

South Dakota 0 $0 

Utah 0 $0 

Wyoming 0 $0 

FEMA Region VIII Total 1 $0 

American Samoa 0 $0 

Arizona 0 $0 

California 160 $3,092,086 

Guam 0 $0 

Hawaii 8 $0 

Mariana Islands 0 $0 

Nevada 1 $0 

FEMA Region IX Total 169 $3,092,086 

Alaska 0 $0 

Idaho 0 $0 

Oregon 7 $0 

Washington 39 $0 

FEMA Region X Total 46 $0 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

33 
Appendix D 

Chronology of Events Regarding USACE Leased Properties 

1944 – First leases of cottages on USACE property. 

1960s – The permanent placement of floating cabins, cottages, and nontransient mobile 

homes and trailers for private exclusive use at USACE project areas is discouraged. 

1970s – USACE begins to phase out existing leases to private parties due to floodplain 

management issues and safety risks. 

1981 – Congress passes Public Law 97-140, Section 6, which imposed a moratorium 

through December 31, 1989, on enforced removal of certain private use facilities from 

any USACE reservoir or lake project. 

1986 – Congress passes the Water Resources Development Act (WRDA) of 1986 Public 

Law 99-662, of which Section 1134 extended the moratorium indefinitely to cottage site 

leases or permitted structures that existed on November 17, 1986 (date of enactment). 

This Act includes a statutory provision that holders of USACE cabin leases must agree to 

hold harmless the United States from any claim, including federal flood insurance, for 

damages or injury in persons or property arising from the leaseholder’s occupancy. 

1993 – Most cabins on USACE-leased properties are damaged during Midwest flooding. 

1993 – FEMA issues a legal opinion that the hold harmless provision does not prohibit 

FEMA from offering flood insurance to the holders of these leases. 

1993 – USACE approves various lease modifications: 

1.	 USACE will not make filing a claim for federal flood insurance grounds for lease 

termination. 

2.	 USACE will formally notify FEMA and the Small Business Administration that 

USACE will not consider full-time occupancy of the Upper Mississippi Valley 

cottage sites a substantial violation of the lease. 

3.	 USACE will inform FEMA and the Small Business Administration that vacated 

tracts will be leased if needed for “immediate use for public park purposes or 

other higher public use,” and they will not be leased for cottage sites or other 

residential purposes. 

1994 –USACE memo (June 17) allows leaseholders to file flood insurance claims. 

2000 – FEMA Region 5 and USACE Mississippi Valley Division develop a joint issue 

paper identifying six issues related to the cottage lease sites: 

1.	 A large number of repetitive loss structures exist on USACE property. 

2.	 Structures on sites leased from USACE account for the largest source of repetitive 

loss structures in the State of Illinois. 

3.	 USACE has a legal responsibility to continue leasing the cabin sites so long as 

they comply with Section 1134 of WRDA 1986. 

4.	 Despite state, local, and federal regulations, violations of floodplain regulations 

continue to exist on property leased by USACE. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

34 
 

Appendix D 

Chronology of Events Regarding USACE Leased Properties 

5.	 FEMA cannot deny flood insurance coverage on structures located within a 

community participating in the National Flood Insurance Program. 

6.	 Since 1993, the State of Illinois has attempted to reduce losses on USACE 


properties through mitigation programs. 


2004 – Flood Insurance Reform Act of 2004 (PL 108-264) requires FEMA to apply 

actuarial flood insurance premiums to all federal lease properties located riverside of a 

flood damage reduction structure. 

2007 April – At a USACE/FEMA flood risk management regional workshop, the State of 

Illinois brings up the six aforementioned cottage lease issues to HQUSACE senior 

leaders. 

2007 August – Jersey County, Illinois, sends letter to Commander of Mississippi Valley 

Division, seeking better coordination and cooperation from USACE on termination of 

cabin leases. 

2007 August – Meeting conducted in St. Louis with St. Louis District, FEMA Region 5, 

State of Illinois, and Jersey County representatives. Summary of meeting – 

o	 USACE should be able to terminate leases for noncompliance with local 


floodplain ordinances. Need a strong stance. States will be supportive. 


o	 Dealing with these sites is very labor intensive. 

o	 Transfer of leases can happen without USACE involvement. 

o	 Need support from HQUSACE and consistent process among districts. 

o	 Need Memorandum of Agreement between FEMA/USACE on deed restriction 

language. 

o	 Would like more proactive communication/notification between 


USACE/FEMA/counties with leaseholders on risk.
 

2007 September – The Intergovernmental Flood Risk Management Committee discusses 

cabin lease site issues. Participants agree to support efforts to resolve issues and will 

begin to track progress on a quarterly basis. 

2007 October – Meeting conducted at HQUSACE with real estate and Mississippi Valley 

Division Representatives. Participants agree that HQUSACE counsel will contact FEMA 

counsel once a point of contact was provided to discuss deed restriction conflict and 

provide list of cabin leases. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

35 
Appendix E 

Annual Increase in Repetitive Loss Properties and Claims 

Year Total Insured Uninsured Claims Payments 

199910 88,813 41,443 47,370 245,018 $3.5 billion 

2000 97,870 47,513 50,357 270,857 $4.0 billion 

2001 102,585 49,150 53,435 284,575 $4.4 billion 

2002 106,555 50,871 55,684 296,369 $4.7 billion 

2003 110,441 51,200 59,241 307,852 $5.0 billion 

2004 117,484 55,589 61,895 327,681 $5.5 billion 

2005 130,416 65,649 64,767 366,523 $7.5 billion 

2006 137,779 69,323 68,456 391,648 $8.7 billion 

2007 141,525 70,226 71,299 405,049 $9.1 billion 

10 1999 data represents cumulative year-end totals from 1978 to 1999. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

36 
Appendix F 

Properties Offering Greatest Net Mitigation Benefit 

State City County/Parish Property Type 

Pennsylvania New Hope Bucks County Condominium 

Date of Claim Claim Amount Current Annual Insurance 

Premium $37,788 

 6/28/2006 $550,448 

Photo Not Available 

4/3/2005 $347,950 

 9/18/2004 $561,767 

 10/25/1996 $10,988 

Total $1,471,153 

Total in Today's Dollars: $1,649,788 

Net Mitigation Benefit: $1,324,800 

State City County/Parish Property Type 

Florida Destin Okaloosa County High-Rise Condominium 

Date of Claim Claim Amount Current Annual Insurance 

Premium $2,082 

 8/25/2005 $16,974 

Photo Not Available 

 7/10/2005 $27,058 

 9/16/2004 $782,511 

 10/4/1995 $652,566 

Total $1,479,109 

Total in Today's Dollars: $2,036,406 

Net Mitigation Benefit: $1,223,100 

State City County/Parish Property Type 

Florida Destin Okaloosa County High-Rise Condominium 

Date of Claim Claim Amount Current Annual Insurance 

Premium $1,580 

 8/25/2005 $16,974 

Photo Not Available 

 7/10/2005 $27,059 

 9/16/2004 $781,285 

 10/4/1995 $578,522 

Total $1,403,840 

Total in Today's Dollars: $1,913,173 

Net Mitigation Benefit: $1,149,900 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

37 
Appendix F 

Properties Offering Greatest Net Mitigation Benefit 

State City County/Parish Property Type 

Alabama Orange Beach Baldwin County High-Rise Condominium 

Date of Claim Claim Amount Current Annual Insurance 

Premium $3,951 

 8/29/2005 $11,211 

 9/16/2004 $1,515,840 

 9/26/2002 $2,117 

 9/28/1998 $954,467 

 10/4/1995 $394,708 

Total $2,878,343 

Total in Today's Dollars: $3,903,982 

Net Mitigation Benefit: $3,098,700 

State City County/Parish Property Type 

Alabama Gulf Shores Baldwin County High-Rise Condominium 

Date of Claim Claim Amount Current Annual Insurance 

Premium $68,099 

 8/29/2005 $66,180 

 9/16/2004 $431,644 

 9/27/1998 $514,360 

Total $1,012,184 

Total in Today's Dollars: $1,431,407 

Net Mitigation Benefit: $1,157,100 

State City County/Parish Property Type 

Florida Pensacola Escambia County High-Rise Condominium 

Date of Claim Claim Amount Current Annual Insurance 

Premium $15,866 

 8/28/2005 $710,229 

Photo Not Available 

 7/10/2005 $1,658,834 

 9/16/2004 $7,229,922 

 4/10/1995 $1,299,472 

Total $10,898,457 

Total in Today's Dollars: $13,237,943 

Net Mitigation Benefit: $10,470,400 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

38 
 

 

 

 

 

 

Appendix G 

Repetitive Loss Properties Mitigated 1978 to 2007 

Total 

Properties 

Mitigated 

Hazard 

Mitigation 

Grant 

Program 

Flood 

Mitigation 

Assistance 

Grant 

Program 

Pre-Disaster 

Mitigation 

Grant 

Program 

Repetitive 

Flood 

Claims 

Grant 

Program 

Severe 

Repetitive 

Loss Grant 

Program 

Other 

Funding 

Sources 

Flood Protection Provided 

Elevated to or above Base Flood 

Elevation 1,464 528 137 0 0 0 799 

Elevated not to Base Flood 

Elevation 12 0 0 0 0 0 12 

Floodproofed to Base Flood 

Elevation 46 29 0 0 0 0 17 

Partially Floodproofed 57 4 0 0 0 0 53 

Flood Control Project 1,868 12 9 0 0 0 1,847 

New Building on Site 725 9 39 1 0 0 676 

Flood protection provided 71 0 0 0 0 0 71 

Totals for Flood Protection 

Provided 4,243 582 185 1 0 0 3,475 

No Building on Property 

Demolished/Not Acquired 3,184 12 2 0 0 0 3,170 

Demolished/Acquired 4,706 2,567 233 25 66 0 1,815 

Relocated 152 61 5 0 0 0 86 

No building on property 69 0 0 0 0 0 69 

Totals for No Building on 

Property 8,111 2,640 240 25 66 0 5,140 

Other Mitigation Types 

Greater Than 100 Years 64 0 0 0 0 0 64 

Unable to Determine 32 0 0 0 0 0 32 

Address Not Specific 2,350 0 0 0 0 0 2,350 

Historic Building 170 0 0 0 0 0 170 

Other Mitigation Type Totals 2,616 0 0 0 0 0 2,616 

Total Properties Mitigated 14,970 3,222 425 26 66 0 11,231 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

39 
Appendix H 

Claims and Premiums of Select Severe Repetitive Loss Properties 

State City County/Parish Property Type 

Louisiana St. Francisville West Fecliciana Parish Single-Family 

Date of Claim Claim Amount Current Annual Insurance 

Premium: $450 

2/5/2005 $4,479 

7/5/2002 $10,518 

 3/25/1997 $20,301 

 6/11/1995 $10,521 

5/1/1994 $8,447 

5/2/1994 $8,716 

5/3/1994 $3,303 

Total $66,285 

State City County/Parish Property Type 

Louisiana Kinder Allen Parish Single-Family 

Date of Claim Claim Amount Current Annual Insurance 

Premium: $362 

 5/16/2004 $5,664 

 11/5/2002 $8,897 

 11/30/2001 $16,288 

 10/15/2001 $2,555 

 1/15/1998 $3,331 

 4/13/1995 $2,295 

 3/17/1995 $2,343 

2/2/1994 $2,123 

 12/16/1991 $5,029 

Total $48,525 

State City County/Parish Property Type 

Illinois Fieldon Jersey County Single-Family 

Date of Claim Claim Amount Current Annual Insurance 

Premium: $1,277 

 5/10/1996 $1,326 

 5/19/1995 $24,851 

7/2/1993 $22,618 

 4/11/1993 $14,433 

Total $63,228 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

40 
Appendix H 

Claims and Premiums of Select Severe Repetitive Loss Properties 

State City County/Parish Property Type 

Texas Beaumont Jefferson County Single-Family 

Date of Claim Claim Amount Current Annual Insurance 

Premium: $415 

 10/15/2006 $20,164 

 5/30/2006 $3,883 

 9/24/2005 $26,248 

 11/22/2004 $6,621 

5/1/2004 $7,252 

 10/9/2003 $16,123 

 9/27/1996 $1,256 

 10/17/1994 $6,615 

4/7/1993 $7,563 

Total $95,725 

State City County/Parish Property Type 

Illinois Fieldon Jersey County Single-Family 

Date of Claim Claim Amount Current Annual Insurance 

Premium: $511 

 5/10/2002 $19,542 

 5/30/1996 $1,951 

 5/17/1995 $7,014 

8/2/1993 $13,000 

5/3/1993 $6,381 

5/1/1983 $4,470 

8/5/1982 $1,968 

 8/15/1981 $1,619 

 4/15/1979 $8,939 

Total $64,884 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

41 
Appendix I 

FEMA’s 2000 Subsidy Reduction Plan Draft Recommendations 

Below are various subsidy reduction alternatives analyzed and discussed by FEMA in 

May 2000. FEMA concluded adopting a combination of the following actions over 7 

years could reduce the subsidy by roughly two-thirds, if there is full funding of FEMA’s 

enhanced mitigation strategy. 

�	 

�	 

�	 

�	 

�	 

Adopt actuarial rating for all Pre-Flood Insurance Rate Map nonprincipal 

residences and all nonresidential properties. Increase rates on these buildings to 

full actuarial rates over 7 years. Introduce Pre-Flood Insurance Rate Map elevated 

rate tables with the next rate change. To implement this, elevation certificates will be 

required of all affected buildings. Phase-in the elevation certificate requirement over 

a yet-to-be-determined multi-year period. 

For the remaining Pre-Flood Insurance Rate Map subsidized policies (primarily 

principal residences), adopt annual rate changes over the next 7 years that, on 

average, will exceed the annual inflation rate and further reduce, but not 

eliminate, the percentage of subsidy provided. Balance the exact amount of the 

changes against the National Flood Insurance Program’s goals of continued market 

penetration and high retention rates for the current book of insureds. 

For all Pre-Flood Insurance Rate Map subsidized nonprincipal residences and 

nonresidential properties, introduce a deductible of 3% of the amount of 

insurance purchased, subject to a minimum $1,000 deductible for each claim. 

Structure rates to encourage individuals to insure their structures to full 

replacement cost value, subject to maximum program limits. FEMA will design 

the rate tables (mentioned in the first action item above) to resemble the current PostFlood Insurance Rate Map V-Zone rate tables. These tables incorporate increasingly 

higher rates the more the structure is underinsured. 

Support increased mitigation activities in coordination with the above four 

National Flood Insurance Program actions. This includes – 

�	 

�	 

�	 

Full funding of the FEMA Repetitive Loss Strategy, 

Continuing the increased funding for mitigation beyond the 4 years provided for 

in the FEMA Repetitive Loss Strategy, and 

Increasing the amount of Hazard Mitigation Grants Program (HMGP) funds 

available and targeted for retrofitting or buyouts in a post-disaster event. 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

42 
Appendix J 

Major Contributors to this Report 

Major Contributors to This Report 

Norman Brown, Director, Preparedness and Mitigation Division, Office of Emergency 

Management Oversight 

Craig Anderson, Auditor-in-Charge, Preparedness and Mitigation Division, Office of 

Emergency Management Oversight 

Aaron Naas, Program Analyst, Preparedness and Mitigation Division, Office of 

Emergency Management Oversight 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

43
 
Appendix K 

Report Distribution 

Report Distribution 

Department of Homeland Security 

Secretary
 

Acting Deputy Secretary 


Chief of Staff of Operations 


Chief of Staff of Policy 


Acting General Counsel 


Executive Secretariat 


Director, GAO/OIG Liaison Office 


FEMA Acting Administrator 


Assistant Secretary for Office of Policy 


Assistant Secretary for Office of Public Affairs 


Assistant Secretary for Office of Legislative Affairs 


FEMA Audit Liaison
 

Office of Management and Budget 

Chief, Homeland Security Branch 


DHS OIG Budget Examiner 


Congress 

Congressional Oversight and Appropriations Committees, as appropriate 

FEMA’s Implementation of the Flood Insurance Reform Act of 2004 

44 
ADDITIONAL INFORMATION AND COPIES 

To obtain additional copies of this report, please call the Office of Inspector General (OIG) at (202) 254-4199, 

fax your request to (202) 254-4305, or visit the OIG web site at www.dhs.gov/oig. 

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To report alleged fraud, waste, abuse or mismanagement, or any other kind of criminal or noncriminal 

misconduct relative to department programs or operations: 

• Call our Hotline at 1-800-323-8603; 

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• Email us at DHSOIGHOTLINE@dhs.gov; or 

• Write to us at: 

DHS Office of Inspector General/MAIL STOP 2600, 

Attention: Office of Investigations - Hotline, 

245 Murray Drive, SW, Building 410, 

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