Congressional Budget Office predicts future claims, expenses will squeeze National Flood Insurance Program

The National Flood Insurance Program (NFIP) is likely have insufficient funding over a 10-year period and billions in federal funds will be needed to help the program meet its responsibilities, according to preliminary findings from the Congressional Budget Office (CBO).

Current reauthorization for the NFIP expires Sept. 30 and members of Congress are investigating the program’s soundness and affordability.

CBO—which provides Congress with nonpartisan analyses for economic and budget decisions—projects that the NFIP will have insufficient receipts to pay the expected claims and expenses over the 2018–2027 period and the program administrator, the Federal Emergency Management Agency (FEMA), will need to use about $1 billion of its current $5.8 billion of borrowing authority from the U.S. Treasury to pay those expected claims.

“That estimate reflects all operating costs and interest payments of the National Flood Insurance Fund, as well as all the program’s income, including the fees and assessments that it collects,” according to CBO, which provided its preliminary findings April 19 to the House Financial Services Committee in advance of a forthcoming full report to the committee.

Specifically, CBO said it makes baseline estimates of the NFIP’s expenditures and receipts for each of the next 10 years to help estimate the overall federal budget deficit and the costs or savings of proposed legislative changes to the program.

CBO said that its estimates are “significantly higher” than FEMA’s estimates, which resulted from the agency using a different approach to measuring expected claims.

“CBO’s 10-year baseline estimates also reflect projected growth in the number of policies written as well as projected increases in premiums set by FEMA—particularly increases in premiums for policies that are now explicitly subsidized,” Keith Hall, CBO director, said.

Hall added that as better information becomes available, it “could change the way it estimates the cost of future NFIP claims in its baseline.” CBO is currently examining the differences between the model FEMA uses to calculate the expected cost of future claims and the commercially available models CBO used for its preliminary findings.