CBO Says NFIP Unable to Cover Costs Without Changes

CBO Says NFIP Unable to Cover Costs Without Changes

The Congressional Budget Office says the National Flood Insurance Program (NFIP) will not be able to cover claims from the 2005 hurricane season or the costs of the program without legislative changes. CBO provided the analysis in response to questions from Sen. Judd Gregg, including whether the flood insurance program would be able to meet its obligations without its debt to the Treasury being forgiven or without perpetual increases in borrowing authority.

CBO said that, in general, the program operates on an “actuarially unsound basis,” with many property owners paying premiums that do not account for the full risk of insuring their properties.

Pending legislation in the House (H.R. 4973) could lead to a reduction in subsidies for nonresidential buildings or non-primary residences. Separate Senate legislation (no bill number assigned) is designed to eliminate subsidies on vacation homes, businesses and severe repetitive loss properties, with the intent of eliminating all subsidies in the future.

CBO Response to Sen. Judd Greg (PDF file, 5/31/06)