Updated January 2, 2019
Selected Issues for National Flood Insurance Program (NFIP)
Reauthorization and Reform
NFIP Reauthorization
H.R. 2874 would have phased out the pre-FIRM subsidy for
The National Flood Insurance Program (NFIP) is the main
primary residences at a rate of 6.5%-15% (compared to the
source of primary flood insurance coverage in the United
current rate of 5%-18%) and would increase surcharges for
States, with more than 5.1 million policies in over 22,000
most policyholders. It would also have capped premiums
communities. Ten short-term NFIP reauthorizations have
for single-family properties at $10,000 per year. S. 1368
been enacted since the end of FY2017, and the NFIP is
would have prohibited FEMA from increasing the amount
currently authorized until May 31, 2019. Unless
of covered costs above 10% per year on any policyholder.
reauthorized or amended by Congress, the following will
occur on May 31, 2019: (1) The authority to provide new
FEMA does not currently have the authority or funding to
flood insurance contracts will expire; however, insurance
implement an affordability program. An NFIP-funded
contracts entered into before the expiration would continue
affordability program would require either raising flood
until the end of their policy term of one year; and (2) the
insurance rates for NFIP policyholders or diverting
authority for the NFIP to borrow funds from the Treasury
resources from another existing use. H.R. 2874 would have
will be reduced from $30.425 billion to $1 billion.
authorized states to create a voluntary flood insurance
affordability program to reduce premiums for owner-
A number of bills were introduced in the 115th Congress to
occupiers of single-family residences. A state affordability
provide longer-term reauthorization of the NFIP, as well as
program would have been funded through a surcharge on
numerous other changes to the program. The House passed
each policy within that state that is not eligible to
H.R. 2874 (21st Century Flood Reform Act) on November
participate in the affordability program. This would have
14, 2017. Three bills were introduced in the Senate.1: S.
created a new cross-subsidy within the NFIP for any states
1313 (Flood Insurance Affordability and Sustainability Act
that develop an affordability program. S. 1313 would have
of 2017), S. 1368 (Sustainable, Affordable, Fair, and
provided vouchers to reduce premiums for owner-occupied
Efficient [SAFE] National Flood Insurance Program
households in mapped high-risk flood zones; it is unclear
Reauthorization Act of 2017), and S. 1571 (National Flood
how these vouchers would be funded. S. 1368 would have
Insurance Program Reauthorization Act of 2017). However,
required FEMA to establish an Affordability Assistance
neither H.R. 2874 nor the three Senate bills were
Fund. This fund would have been credited with the income
considered by the Senate in the 115th Congress.
from an existing surcharge paid by all policyholders, and
could be used for vouchers, grants, or premium credits to
Premiums and Affordability
eligible households.
Throughout its history, Congress has asked FEMA to set
NFIP premiums that are simultaneously “risk-based†and
Properties with Multiple Losses
“reasonable.†Except for certain subsidies, statute directs
An area of controversy involves NFIP coverage of
that NFIP flood insurance rates should reflect the true flood
properties that have suffered multiple flood losses. One
risk to the property. Properties that pay less than the full
concern is the cost to the program; another is whether the
risk-based rate are determined by the date when the
NFIP should continue to insure properties that are likely to
structure was built relative to the date of adoption of the
have further losses. According to FEMA, all repetitive loss
Flood Insurance Rate Map (FIRM), rather than the flood
(RL) and severe repetitive loss (SRL) properties over the
risk or the ability of the policyholder to pay. Congress has
history of the program amount to approximately $17 billion
directed FEMA to subsidize flood insurance for properties
in claims, or approximately 30% of total claims paid. Some
built before the community’s first FIRM (the pre-FIRM
RL and SRL properties have been mitigated, and some are
subsidy). FEMA also “grandfathers†properties at their rate
no longer insured by the NFIP. Currently, insured RL and
from past FIRMs to updated FIRMs through a cross-
SRL properties (which represent about 2% of the overall
subsidy. Under existing law, pre-FIRM subsidies are being
policies in the NFIP) account for approximately $9 billion
phased out, while grandfathering is retained indefinitely.
in claims, or approximately 16% of total claims paid over
the history of the program. Reducing the number of RL and
Reforming the premium structure to reflect full risk-based
SRL properties, through mitigation or relocation, could
rates could place the NFIP on a more financially sustainable
reduce claims and improve the NFIP’s financial position.
path, risk-based price signals could give policyholders a
clearer understanding of their true flood risk, and a
H.R. 2874 and S. 1571 would have required certain NFIP
reformed rate structure could encourage more private
communities with a history of flood loss to identify
insurers to enter the market. However, charging risk-based
repetitive loss property locations, assess the continuing
premiums may mean that insurance for some properties is
risks to such areas, and develop community-specific flood
considered unaffordable.
mitigation plans for risks in these areas. Failure to meet
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Selected Issues for National Flood Insurance Program (NFIP) Reauthorization and Reform
these requirements would have resulted in possible
insurance became a large part of the flood marketplace. The
sanctions from FEMA. H.R. 2874 would also have defined
majority of funding for floodplain mapping and
a new “multiple-loss property†category which would
management comes from the Federal Policy Fee (FPF),
include RL, SRL, and a new category of extreme repetitive
which is paid by all NFIP policyholders. To the extent that
loss properties. After two claims, any multiple-loss
the private flood insurance market grows and policies move
properties that are charged less than full risk-based rates
from the NFIP to private insurers, FEMA would no longer
would have had premium rates increased at 10% per year
collect the FPF on those policies and less money will be
until the full risk-based rate is reached. This would have
available for floodplain mapping and management.
had the effect of eliminating grandfathering for multiple-
loss properties after two future claims. H.R. 2874 would
The four reauthorization bills differ in the degree to which
also have eliminated any new or renewed NFIP coverage
they encourage private participation in flood insurance,
for multiple-loss properties with excessive lifetime claims,
particularly flood insurance sold by private companies in
representing the first time that the NFIP could refuse to
competition with the NFIP. H.R. 2874 included several
cover a property.
provisions intended to promote private flood insurance:
revising the definition of private flood insurance, allowing
Private Flood Insurance
private flood insurance to satisfy the mandatory purchase
Currently private insurers play a major role in administering
requirement (MPR), where federally-regulated lending
the NFIP, including selling and servicing policies and
institutions must require property owners in a Special Flood
adjusting claims, but take on relatively little flood risk
Hazard Area to purchase flood insurance as a condition of
themselves. Instead, the NFIP retains the direct financial
obtaining a mortgage). H.R. 2874 would also have
risk of paying claims for these policies. Few private
eliminated the MPR for non-residential properties and
insurers compete with the NFIP in the primary residential
required FEMA to make NFIP data publicly available,
flood insurance market. However, private insurer interest in
including to private insurers. S. 1313 would have revised
providing flood coverage has increased in recent years, and
the definition of private flood insurance in a similar manner
private insurance is seen by many as a way of transferring
to H.R. 2874 and would also have allowed private flood
flood risk from the federal government to the private sector.
insurance to satisfy the MPR. However, S. 1313 would only
have given temporary authority for sale of private flood
Private flood insurance may offer some advantages over the
insurance for certain types of properties for two years and
NFIP, including more flexible policies, broader coverage,
would require FEMA to study the extent to which the entry
integrated coverage with homeowners’ insurance, business
of private insurers adversely impacted the NFIP’s risk pool.
interruption insurance, or lower-cost coverage for some
S. 1313 would also have required FEMA to study the
consumers. Private marketing might also increase the
feasibility of selling or licensing the use of NFIP claims
overall amount of flood coverage purchased. More people
data to non-governmental entities. Neither S. 1368 nor S.
purchasing flood insurance, either NFIP or private, could
1571 contained provisions relating to private flood
help to reduce the amount of disaster assistance provided by
insurance in competition with the NFIP.
the federal government. Increasing private insurance,
however, may have some disadvantages compared to the
CRS Products About the NFIP
NFIP. Unlike the NFIP, private coverage availability would
CRS Report R44593, Introduction to the National Flood
not be guaranteed to all floodplain residents, and consumer
Insurance Program (NFIP).
protections could vary in different states, leading to variable
claims outcomes. In addition, private sector competition
CRS Report R45099, National Flood Insurance Program:
might increase the financial exposure and volatility of the
Selected Issues and Legislation in the 115th Congress.
NFIP, as private markets will likely seek out policies that
offer the greatest likelihood of profit. In the most extreme
CRS Report R45242, Private Flood Insurance and the
case, the private market might “cherry-pick†(i.e., adversely
National Flood Insurance Program.
select) the profitable, lower-risk NFIP policies that are
“overpriced†either due to cross-subsidization or imprecise
CRS Insight IN10450, Private Flood Insurance and the
rate structures. This could leave the NFIP with a higher
National Flood Insurance Program (NFIP).
density of actuarially unsound policies that are directly
subsidized or benefit from cross-subsidization. An increase
CRS Insight IN10784, National Flood Insurance Program
in private flood insurance policies that “depopulates†the
Borrowing Authority.
NFIP may also undermine the NFIP’s ability to generate
revenue, reducing the ability or extending the time required
CRS Insight IN10835, What Happens If the National Flood
to repay previously incurred debt.
Insurance Program (NFIP) Lapses?
The role of the NFIP has historically been broader than just
CRS Insight IN10890, Closing the Flood Insurance Gap.
providing insurance. As currently authorized, the NFIP also
encompasses social goals to provide flood insurance in
CRS In Focus IF10988, A Brief Introduction to the National
flood-prone areas to those who otherwise would not be able
Flood Insurance Program.
to obtain it, and to reduce government’s cost after floods.
The NFIP has tried to reduce the impact of floods through
Diane P. Horn, Analyst in Flood Insurance and Emergency
flood mapping and mitigation efforts. It is unclear how
Management
effectively the NFIP could play this broader role if private
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Selected Issues for National Flood Insurance Program (NFIP) Reauthorization and Reform
IF11023
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https://crsreports.congress.gov | IF11023 · VERSION 4 · UPDATED