Federal Disaster Insurance

GAO commented on the proposed changes to the Natural Disaster Protection Act's primary insurance and reinsurance programs. GAO noted that: (1) the greatest concerns with the primary insurance program involve the difficulty in setting affordable rates, attaining adequate participation, and reducing multihazard coverage costs; (2) although recent computer modeling advances have enabled insurers to better predict expected losses from natural disasters, insurers have difficulty setting actuarially sound insurance rates due to current data limitations; (3) proposed changes to improve the affordability of multihazard insurance to homeowners who live in disaster-prone areas may not be feasible because the government may be unable to enforce insurance purchase requirements or enroll enough homeowners in subsidy programs; (4) additional information is needed to ensure that the primary insurance program reduces cross-subsidization among policyholders and individual companies' administrative costs; (5) initiatives to reduce the government's exposure to disaster losses in the reinsurance program may not affect the insurance industry's ability to manipulate federal reinsurance payments; and (6) although changes to the reinsurance program address the Federal Emergency Management Agency's lack of authority to deny excess reinsurance to eligible companies, they do not address the type of losses that would qualify under the reinsurance program.