Flood Insurance: Opportunities Exist to Improve Oversight of the WYO Program.GAO-09-455 August 21, 2009 Since 2004, private insurance companies participating in the Federal Emergency Management Agency's (FEMA) Write-Your-Own (WYO WYO Wyoming (old style) WYO Write Your Own ) program have collected an average of $2.3 billion in premiums annually and, of this amount, have been paid or allowed to retain an average of $1 billion per year. Questions have been raised about FEMA's oversight of the program in light of the debts FEMA has incurred since the 2005 hurricanes. GAO placed NFIP NFIP National Flood Insurance Program (US FEMA) NFIP National Foreign Intelligence Program NFIP National Foundation for Infantile Paralysis, Inc. NFIP National Federation of Independent Photographers on its high-risk list and issued several reports addressing the challenges the program faces. This report addresses the methods FEMA uses for determining the rates at which WYOs are paid, its marketing bonus system for WYOs, its adherence to financial control requirements for the WYO program, and alternatives to the current system. To do this work, we reviewed and analyzed an·a·lyze tr.v. an·a·lyzed, an·a·lyz·ing, an·a·lyz·es 1. To examine methodically by separating into parts and studying their interrelations. 2. Chemistry To make a chemical analysis of. 3. FEMA's data and policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental and obtained the views of select WYOs and flood insurance Flood insurance denotes the specific insurance coverage against property loss from flooding. To determine risk factors for specific properties, insurers will often refer to topographical maps that denote lowlands and floodplains that are susceptible to flooding. experts. FEMA does not systematically consider actual flood insurance expense information when it determines the amount it pays the WYO for selling and servicing flood insurance policies and adjusting claims. Rather, since the inception of the WYO program, FEMA has used various proxies for determining the rates at which it pays the WYOs. Consequently, FEMA does not have the information it needs to determine (1) whether its payments are reasonable and (2) the amount of profit to the WYOs that are included in its payments. When GAO compared expense payments FEMA made to six WYOs to the WYOs' actual expenses for calendar years 2005 through 2007, we found that the payments exceeded actual expenses by $327.1 million, or 16.5 percent of total payments made. Considering actual expense information would provide transparency and accountability over payments to the WYOs. FEMA has not aligned its bonus structure with its long-term goals for the program. The WYOs generally offered flood insurance when requested but did not strategically market the product as a primary insurance line. FEMA has not set explicit marketing goals beyond a 5 percent goal of increasing policy growth each year, and the WYO program primarily rewards companies that are new to NFIP for sales increases that may result from external factors, including flood events. The Government Performance and Results Act The Government Performance and Results Act (GPRA) is a US Law enacted in 1993. It is one of a series of laws designed to improve government project management. The GPRA requires agencies to engage in project management tasks such as setting goals, measuring results, and reporting states that when results could be influenced by external factors, agencies can use intermediate goals to measure contributions to specific goals. Paying bonuses based on such intermediate targeted goals could bring the bonus structure more in line with FEMA's goals for the NFIP program. FEMA has explicit financial control requirements and procedures for the WYO program but has not implemented all aspects of its Control Plan. FEMA provides guidance for WYOs that is intended to ensure compliance with the statutory requirements for the NFIP and contains checks and balances to help ensure that taxpayer funds are spent appropriately. FEMA did most of the required biennial biennial, plant requiring two years to complete its life cycle, as distinguished from an annual or a perennial. In the first year a biennial usually produces a rosette of leaves (e.g., the cabbage) and a fleshy root, which acts as a food reserve over the winter. audits and underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. and claims reviews but did not do most of the required audits for cause; state insurance department audits; and marketing, litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. , and customer service operational reviews. In addition, FEMA did not systematically track the outcomes of the various audits, inspections, and reviews that it performed for the 10 WYOs included in this review of FEMA's oversight of the program. Because FEMA does not implement all aspects of the Control Plan, it cannot ensure that the WYOs are fully complying with program requirements. Three alternative administrative structures could replace NFIP's payment arrangement with a competitively awarded contract that could lower costs for selling and servicing flood insurance policies and administering claims: (1) contracting with one or more insurance companies, (2) contracting with a single vendor, or (3) contracting with multiple vendors and maintaining the WYO network. Each alternative involves trade-offs in terms of the impact on the program's basic operations that would have to be considered. Recommendations Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work. Director: Orice Williams Brown Team: Government Accountability Office The Government Accountability Office (GAO) is the audit, evaluation, and investigative arm of the United States Congress, and thus an agency in the Legislative Branch of the United States Government. : Financial Markets and Community Investment Phone: (202) 512-5837 Recommendations for Executive Action ---------- Recommendation: To provide transparency and accountability over the payments FEMA makes to WYOs for expenses and profits, the Secretary of Homeland Security should direct the Under Secretary of Homeland Security, FEMA, to determine in advance the amounts built into the payment rates for estimated expenses and profit. Agency Affected: Department of Homeland Security Noun 1. Department of Homeland Security - the federal department that administers all matters relating to homeland security Homeland Security executive department - a federal department in the executive branch of the government of the United States Status: In process Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information. ---------- Recommendation: To provide transparency and accountability over the payments FEMA makes to WYOs for expenses and profits, the Secretary of Homeland Security should direct the Under Secretary of Homeland Security, FEMA, to annually analyze the amounts of actual expenses and profit in relation to the estimated amounts used in setting payment rates. Agency Affected: Department of Homeland Security Status: In process Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information. ---------- Recommendation: To provide transparency and accountability over the payments FEMA makes to WYOs for expenses and profits, the Secretary of Homeland Security should direct the Under Secretary of Homeland Security, FEMA, to consider the results of the analysis of payments, actual expenses, and profit in evaluating the methods for paying WYOs. Agency Affected: Department of Homeland Security Status: In process Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information. ---------- Recommendation: To provide transparency and accountability over the payments FEMA makes to WYOs for expenses and profits, the Secretary of Homeland Security should direct the Under Secretary of Homeland Security, FEMA, to in light of the findings in this report, immediately reassess reassess Verb to reconsider the value or importance of reassessment n Verb 1. reassess - revise or renew one's assessment reevaluate the practice of paying WYOs an additional 1 percent of written premiums for operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. . Agency Affected: Department of Homeland Security Status: In process Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information. ---------- Recommendation: To increase the usefulness of the data reported by WYOs to the National Association of Insurance Commissioners (NAIC NAIC See National Association of Investors Corporation (NAIC). ) and to institutionalize in·sti·tu·tion·a·lize v. To place a person in the care of an institution, especially one providing care for the disabled or mentally ill. in FEMA's use of such data, the Secretary of Homeland Security should direct the Under Secretary of Homeland Security, FEMA, to take actions to obtain reasonable assurance that NAIC flood insurance expense data can be considered in setting payment rates that are appropriate, including identifying affiliated company profits in reported flood insurance expenses. Agency Affected: Department of Homeland Security Status: In process Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information. ---------- Recommendation: To increase the usefulness of the data reported by WYOs to the National Association NAIC and to institutionalize FEMA's use of such data, the Secretary of Homeland Security should direct the Under Secretary of Homeland Security, FEMA, to develop comprehensive data analysis strategies to annually test the quality of flood insurance data that WYOs report to NAIC. Agency Affected: Department of Homeland Security Status: In process Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information. ---------- Recommendation: If FEMA continues to use the WYO bonus program, the Secretary of Homeland Security should direct the Under Secretary of Homeland Security, FEMA, to improve it by considering the use of more targeted marketing goals that are in line with FEMA's NFIP goals. Agency Affected: Department of Homeland Security Status: In process Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information. ---------- Recommendation: To improve oversight of the WYO program and compliance with program requirements, the Secretary of Homeland Security should direct the Under Secretary of Homeland Security, FEMA, to consistently follow the Control Plan and ensure that each component is implemented. Agency Affected: Department of Homeland Security Status: In process Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information. ---------- Recommendation: To improve oversight of the WYO program and compliance with program requirements, the Secretary of Homeland Security should direct the Under Secretary of Homeland Security, FEMA, to ensure that any revised Control Plan include oversight of all functions of participating WYOs, including customer service and litigation expenses. Agency Affected: Department of Homeland Security Status: In process Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information. ---------- Recommendation: To improve oversight of the WYO program and compliance with program requirements, the Secretary of Homeland Security should direct the Under Secretary of Homeland Security, FEMA, to systematically track insurance companies' compliance with and performance under each component of the Control Plan and ensure centralized cen·tral·ize v. cen·tral·ized, cen·tral·iz·ing, cen·tral·iz·es v.tr. 1. To draw into or toward a center; consolidate. 2. access to all the audits, reviews, and data analyses performed for each participating insurance company under the Control Plan. Agency Affected: Department of Homeland Security Status: In process Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information. Categories: Homeland Security, Advance payments, Claims processing, Expense claims, FEMA Financial Control Plan and Procedures, FEMA National Flood Insurance Program, FEMA Write Your Own Program, Financial management, Flood insurance, Funds management, Homeowners insurance, Insurance claims, Insurance companies, Insurance cost control, Insurance premiums, Insurance regulation, Program evaluation Program evaluation is a formalized approach to studying and assessing projects, policies and program and determining if they 'work'. Program evaluation is used in government and the private sector and it's taught in numerous universities. , Risk assessment, Risk factors, Risk management |
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