Updated November 26December 30, 2019
A Brief Introduction to the National Flood Insurance Program
The National Flood Insurance Program (NFIP) is the
primary source of flood insurance coverage for residential
properties in the United States. The NFIP has two main
policy goals: (1) to provide access to primary flood
insurance, thereby allowing for the transfer of some of the
financial risk of property owners to the federal government;
and (2) to mitigate and reduce the nation’s comprehensive
flood risk through the development and implementation of
floodplain management standards. A longer-term objective
of the NFIP is to reduce federal expenditure on disaster
assistance after floods. As a public insurance program, the
goals of the NFIP are different from the goals of privatesector insurance companies. It encompasses social goals to
provide flood insurance in flood-prone areas to property
owners who otherwise would not be able to obtain it, and to
reduce the government’s cost after floods. The NFIP also
engages in many “noninsurance” activities in the public
interest: it identifies and maps flood hazards, disseminates
flood-risk information through flood maps, requires
community land-use and building-code standards,
contributes to community resilience by providing a
mechanism to fund rebuilding after a flood, and offers
grants and incentive programs for household- and
community-level investments in flood-risk reduction.
Over 22,000 communities in 56 states and jurisdictions
participate in the NFIP, with more than 5 million policies
providing over $1.3 trillion in coverage. The program
collects about $4 billion in annual premium revenue. Floods
are the most common natural disaster in the United States.
All 50 states, plus DC, Puerto Rico, Guam, American
Samoa, the U.S. Virgin Islands, and the Northern Mariana
Islands have experienced flood events since May 2018.
Structure of the NFIP
The NFIP is managed by the Federal Emergency
Management Agency (FEMA) through its subcomponent,
the Federal Insurance and Mitigation Administration
(FIMA). A . A
core design feature of the NFIP is that
communities are not
required to participate in the program
by any law or
regulation, but instead participate voluntarily
in order to
obtain access to NFIP flood insurance.
Communities that
choose to participate in the NFIP are
required to adopt land
use and control measures with
effective enforcement
provisions and to regulate
development in the floodplain.
FEMA has set forth in
federal regulations the minimum
standards required for
participation in the NFIP; however,
these standards have
the force of law only because they are
adopted and enforced
by a state or local government. Legal
enforcement of the
floodplain management standards is the
responsibility of
the participating NFIP community, which
can elect to adopt
higher standards as a means of mitigating
flood risk. In
addition, FEMA operates a program, called
the Community
Rating System, to incentivize NFIP
communities to adopt
more rigorous floodplain
management standards.
NFIP flood insurance policies are sold only in participating
communities and are offered to both property owners and
renters, and to residential and nonresidential properties.
NFIP policies have relatively low coverage limits,
particularly for nonresidential properties or properties in
high-cost areas. The maximum coverage for single-family
dwellings (which also includes single-family residential
units within a 2-4 family building) is $100,000 for contents
and up to $250,000 for building coverage. The maximum
available coverage limit for other residential buildings is
$500,000 for building coverage and $100,000 for contents
coverage, and the maximum coverage limit for
nonresidential business buildings is $500,000 for building
coverage and $500,000 for contents coverage.
Flood Mapping
The NFIP approaches the goal of reducing comprehensive
flood risk primarily by requiring participating communities
to collaborate with FEMA to develop and adopt flood maps
called Flood Insurance Rate Maps (FIRMs). An area of
specific focus of the FIRM is the Special Flood Hazard
Area (SFHA). The SFHA is defined by FEMA as an area
with a 1% or greater risk of flooding every year. FIRMs
provide the basis for setting insurance rates, identifying
properties whose owners are required to purchase flood
insurance, and establishing floodplain management
standards that communities must adopt and enforce as part
of their participation in the NFIP. There is no consistent,
definitive timetable for revising and updating FIRMs for a
particular community. Generally, flood maps may require
updating after significant new building development in or
near the flood zone, changes to flood-protection systems, or
environmental changes in the community. Statutory
guidelines set out the procedure for developing new FIRMs
for a community. For example, FEMA is required to
conduct extensive communication and outreach efforts with
the community during the mapping process, which includes
several review and comment periods of 30 to 90 days.
Communities and individuals also have legal recourse to
appeal during the FIRM updating process. After a map is
finalized and adopted by a community, it can still be
revised to correct for errors in map accuracy. To correct
these inaccuracies, FEMA allows individuals and communities to request letters amending or revising the flood map.
The Mandatory Purchase Requirement
In a community that participates or has participated in the
NFIP, property owners in the mapped SFHA are required to
purchase flood insurance as a condition of receiving a
federally backed mortgage. Federal agencies, federally
regulated lending institutions, and government-sponsored
https://crsreports.congress.gov
A Brief Introduction to the National Flood Insurance Program
enterprises must require these property owners to purchase
flood insurance as a condition of any mortgage that these
entities make, guarantee, or purchase. To comply with this
mandate, property owners may purchase flood insurance
through the NFIP or through a private company, as long as
the private flood insurance meets the condition set by
statute that it “provides flood insurance coverage which is
at least as broad as the coverage” of the NFIP, among other
conditions. The mandatory purchase requirement is
enforced by the lender, rather than FEMA. Property owners
who do not obtain flood insurance when required may find
that they are not eligible for certain types of disaster
assistance assistance
after a flood.
Financial Standing of the NFIP
The NFIP is funded from premiums, fees, and surcharges
paid by NFIP policyholders; direct annual appropriations
for specific costs of the NFIP (currently only for the flood
hazard mapping and risk analysis program); and borrowing
from the Treasury when the balance of the National Flood
Insurance Fund is insufficient to pay the NFIP’s obligations
(e.g., insurance claims). The NFIP was not designed to
retain funding to cover claims for truly extreme events;
instead, the statute allows the program to borrow money
from the Treasury for such events. For most of the NFIP’s
history, the program was able to borrow relatively small
amounts from the Treasury to pay claims and then repay the
loans with interest. However, this changed when Congress
increased the level of NFIP borrowing to $20.775 billion to
pay claims in the aftermath of the 2005 hurricane season
(particularly Hurricanes Katrina, Rita, and Wilma).
Congress increased the borrowing limit again following
Hurricane Sandy to its current limit of $30.425 billion.
The 2017 hurricane season was the second-largest claims
year in the NFIP’s history—second only to the 2005
hurricane season. At the beginning of the 2017 hurricane
season, the NFIP owed $24.6 billion. On September 22,
2017, the NFIP borrowed the remaining $5.825 billion from
the Treasury to cover claims from Hurricane Harvey,
reaching the NFIP’s authorized borrowing limit of $30.425
billion. On October 26, 2017, Congress cancelled $16
billion of NFIP debt, to make it possible for the program to
pay claims for Hurricanes Harvey, Irma, and Maria. FEMA
borrowed another $6.1 billion on November 9, 2017, to
fund estimated 2017 losses, including those incurred by
Hurricanes Harvey, Irma, and Maria, bringing the debt back
up to $20.525 billion. As of August 2019, the NFIP has
$9.9 billion of remaining borrowing authority and has paid
$10.15 billion in claims in response to Hurricanes Harvey,
Irma, and Maria, and $952.5 million in claims for the 2018
hurricanes, Florence and Michael.
The NFIP’s debt is conceptually owed by current and future
participants in the NFIP, as the insurance program itself
owes the debt to the Treasury and pays for accruing interest
on that debt through the premium revenues of
policyholders. Under its current authorization, the only
means the NFIP has to pay off the debt is through the
accrual of premium revenues in excess of outgoing claims,
and from payments made out of the reserve fund. For
example, since 2005 the NFIP has paid $2.82 billion in
principal repayments and $4.2 billion in interest to service
the debt through the premiums collected on insurance
policies. The cancellation of $16 billion of NFIP debt in
October 2017 represents the first time that NFIP debt has
been cancelled, although Congress appropriated funds
between 1980 and 1985 to repay NFIP debt.
Reauthorization of the NFIP
Since the end of FY2017, 1315 short-term NFIP
reauthorizations have been enacted. The NFIP is currently
authorized until December 20, 2019. TwoSeptember 30, 2020. Three bills have been
introduced in the 116th Congress to provide a longer-term
reauthorization of the NFIP as well asand numerous other
changes to
the program. H.R. 3167, the National Flood
Insurance Insurance
Program Reauthorization Act of 2019, was
introduced on
June 6, 2019, and reported favorably by the
House House
Financial Services Committee five days later,
following a
unanimous vote. S. 2187, the National Flood
Insurance Insurance
Program Reauthorization and Reform Act of
2019, was
introduced on July 18, 2019, with a companion bill, H.R.
3872, introduced on July 22, 2019.
The statute for the NFIP does not contain a comprehensive
expiration, termination, or sunset provision for the whole of
the program. Rather, the NFIP has multiple different legal
provisions that generally tie to the expiration of key
components of the program. Unless reauthorized or
amended by Congress, the following will occur on
December 20, 2019September 30, 2020: (1) the authority to provide new flood
insurance contracts will expire; however, insurance
contracts entered into before the expiration would continue
until the end of their policy term of one year; and (2) the
authority for NFIP to borrow funds from the Treasury will
be reduced from $30.425 billion to $1 billion.
CRS Products About the NFIP
CRS Report R44593, Introduction to the National Flood
Insurance Program (NFIP).
CRS Report R44808, Federal Disaster Assistance: The
National Flood Insurance Program and Other Federal
Disaster Assistance Programs Available to Individuals and
Households After a Flood.
CRS Report R45099,R46095, The National Flood Insurance
Program:
Selected Issues and Legislation in the 115th 116th
Congress.
CRS Report R45242, Private Flood Insurance and the
National Flood Insurance Program.
CRS Insight IN10450, Private Flood Insurance and the
National Flood Insurance Program (NFIP).
CRS Insight IN10784, National Flood Insurance Program
Borrowing Authority.
CRS Insight IN10835, What Happens If the National Flood
Insurance Program (NFIP) Lapses?
CRS Insight IN10965, The National Flood Insurance
Program (NFIP), Reinsurance, and Catastrophe Bonds.
CRS Insight IN10890, Closing the Flood Insurance Gap.
Diane P. Horn, Analyst in Flood Insurance and Emergency
Management
https://crsreports.congress.gov
IF10988
A Brief Introduction to the National Flood Insurance Program
Diane P. Horn, Analyst in Flood Insurance and Emergency
Management
IF10988
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