Updated January 4, 2019
A Brief Introduction to the National Flood Insurance Program
The National Flood Insurance Program (NFIP) is the
Rating System, to incentivize NFIP communities to adopt
primary source of flood insurance coverage for residential
more rigorous floodplain management standards.
properties in the United States. The NFIP has two main
policy goals: (1) to provide access to primary flood
NFIP flood insurance policies are sold only in participating
insurance, thereby allowing for the transfer of some of the
communities and are offered to both property owners and
financial risk of property owners to the federal government;
renters, and to residential and non-residential properties.
and (2) to mitigate and reduce the nation’s comprehensive
NFIP policies have relatively low coverage limits,
flood risk through the development and implementation of
particularly for non-residential properties or properties in
floodplain management standards. A longer-term objective
high-cost areas. The maximum coverage for single-family
of the NFIP is to reduce federal expenditure on disaster
dwellings (which also includes single-family residential
assistance after floods. As a public insurance program, the
units within a 2-4 family building) is $100,000 for contents
goals of the NFIP are different from the goals of private-
and up to $250,000 for building coverage. The maximum
sector insurance companies. It encompasses social goals to
available coverage limit for other residential buildings is
provide flood insurance in flood-prone areas to property
$500,000 for building coverage and $100,000 for contents
owners who otherwise would not be able to obtain it, and to
coverage, and the maximum coverage limit for non-
reduce the government’s cost after floods. The NFIP also
residential business buildings is $500,000 for building
engages in many “noninsurance” activities in the public
coverage and $500,000 for contents coverage.
interest: it identifies and maps flood hazards, disseminates
flood-risk information through flood maps, requires
Flood Mapping
community land-use and building-code standards,
The NFIP approaches the goal of reducing comprehensive
contributes to community resilience by providing a
flood risk primarily by requiring participating communities
mechanism to fund rebuilding after a flood, and offers
to collaborate with FEMA to develop and adopt flood maps
grants and incentive programs for household- and
called Flood Insurance Rate Maps (FIRMs). An area of
community-level investments in flood-risk reduction.
specific focus of the FIRM is the Special Flood Hazard
Area (SFHA). The SFHA is defined by FEMA as an area
Over 22,000 communities in 56 states and jurisdictions
with a 1% or greater risk of flooding every year. FIRMs
participate in the NFIP, with more than 5.1 million policies
provide the basis for setting insurance rates, identifying
providing over $1.3 trillion in coverage. The program
properties whose owners are required to purchase flood
collects nearly $3.6 billion in annual premium revenue.
insurance, and establishing floodplain management
Floods are the most common natural disaster in the United
standards that communities must adopt and enforce as part
States, and in recent years all 50 states have experienced
of their participation in the NFIP. There is no consistent,
flood events.
definitive timetable for revising and updating FIRMs for a
particular community. Generally, flood maps may require
Structure of the NFIP
updating after significant new building development in or
The NFIP is managed by the Federal Emergency
near the flood zone, changes to flood-protection systems, or
Management Agency (FEMA) through its subcomponent
environmental changes in the community. Statutory
the Federal Insurance and Mitigation Administration
guidelines set out the procedure for developing new FIRMs
(FIMA). A core design feature of the NFIP is that
for a community. For example, FEMA is required to
communities are not required to participate in the program
conduct extensive communication and outreach efforts with
by any law or regulation, but instead participate voluntarily
the community during the mapping process, which includes
in order to obtain access to NFIP flood insurance.
several review and comment periods of 30 to 90 days.
Communities that choose to participate in the NFIP are
Communities and individuals also have legal recourse to
required to adopt land use and control measures with
appeal during the FIRM updating process. After a map is
effective enforcement provisions and to regulate
finalized and adopted by a community, it can still be
development in the floodplain. FEMA has set forth in
revised to correct for errors in map accuracy. To correct
federal regulations the minimum standards required for
these inaccuracies, FEMA allows individuals and commun-
participation in the NFIP; however, these standards have
ities to request letters amending or revising the flood map.
the force of law only because they are adopted and enforced
by a state or local government. Legal enforcement of the
The Mandatory Purchase Requirement
floodplain management standards is the responsibility of
In a community that participates or has participated in the
the participating NFIP community, which can elect to adopt
NFIP, property owners in the mapped SFHA are required to
higher standards as a means of mitigating flood risk. In
purchase flood insurance as a condition of receiving a
addition, FEMA operates a program, called the Community
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
and from payments made out of the reserve fund. For
flood insurance as a condition of any mortgage that these
example, since 2005 the NFIP has paid $2.82 billion in
entities make, guarantee, or purchase. To comply with this
principal repayments and $3.83 billion in interest to service
mandate, property owners may purchase flood insurance
the debt through the premiums collected on insurance
through the NFIP or through a private company, as long as
policies. The cancellation of $16 billion of NFIP debt in
the private flood insurance meets the condition set by
October 2017 represents the first time that NFIP debt has
statute that it “provides flood insurance coverage which is
been cancelled, although Congress appropriated funds
at least as broad as the coverage” of the NFIP, among other
between 1980 and 1985 to repay NFIP debt.
conditions. The mandatory purchase requirement is
enforced by the lender, rather than FEMA. Property owners
Reauthorization of the NFIP
who do not obtain flood insurance when required may find
Since the end of FY2017, ten short-term NFIP
that they are not eligible for certain types of disaster
reauthorizations have been enacted. The NFIP is currently
assistance after a flood.
authorized until May 31, 2019. A number of bills were
introduced in the 115th Congress to provide a longer-term
Financial Standing of the NFIP
reauthorization of the NFIP as well as numerous other
The NFIP is funded from premiums, fees, and surcharges
changes to the program. The House passed H.R. 2874 (The
paid by NFIP policyholders; direct annual appropriations
21st Century Flood Reform Act) on November 14, 2017.
for specific costs of the NFIP (currently only mapping); and
Three bills were introduced in the Senate that would have
borrowing from the Treasury when the balance of the
reauthorized the expiring provisions of the NFIP, but none
National Flood Insurance Fund is insufficient to pay the
of these bills were considered in the 115th Congress.
NFIP’s obligations (e.g., insurance claims). The NFIP was
not designed to retain funding to cover claims for truly
The statute for the NFIP does not contain a comprehensive
extreme events; instead, the statute allows the program to
expiration, termination, or sunset provision for the whole of
borrow money from the Treasury for such events. For most
the program. Rather, the NFIP has multiple different legal
of the NFIP’s history, the program was able to borrow
provisions that generally tie to the expiration of key
relatively small amounts from the Treasury to pay claims
components of the program. Unless reauthorized or
and then repay the loans with interest. However, this
amended by Congress, the following will occur on May 31,
changed when Congress increased the level of NFIP
2019: (1) the authority to provide new flood insurance
borrowing to $20.775 billion to pay claims in the aftermath
contracts will expire; however, insurance contracts entered
of the 2005 hurricane season (particularly Hurricanes
into before the expiration would continue until the end of
Katrina, Rita, and Wilma). Congress increased the
their policy term of one year; and (2) the authority for NFIP
borrowing limit again following Hurricane Sandy to its
to borrow funds from the Treasury will be reduced from
current limit of $30.425 billion.
$30.425 billion to $1 billion.
The 2017 hurricane season was the second-largest claims
CRS Products About the NFIP
year in the NFIP’s history—second only to the 2005
CRS Report R44593, Introduction to the National Flood
hurricane season. As of December 2018, the NFIP has paid
Insurance Program (NFIP).
$10.497 billion in claims in response to Hurricanes Harvey,
Irma, and Maria. Total NFIP claims for Hurricane Harvey
CRS Report R44808, Federal Disaster Assistance: The
are expected to be between $8.7 billion and $9.01 billion,
National Flood Insurance Program and Other Federal
for Hurricane Irma between $1.003 billion and $1.074
Disaster Assistance Programs Available to Individuals and
billion, and for Hurricane Maria between $25 million and
Households After a Flood.
$34 million. At the beginning of the 2017 hurricane season,
the NFIP owed $24.6 billion. On September 22, 2017, the
CRS Report R45099, National Flood Insurance Program:
NFIP borrowed the remaining $5.825 billion from the
Selected Issues and Legislation in the 115th Congress.
Treasury to cover claims from Hurricane Harvey, reaching
the NFIP’s authorized borrowing limit of $30.425 billion.
CRS Report R45242, Private Flood Insurance and the
On October 26, 2017, Congress cancelled $16 billion of
National Flood Insurance Program.
NFIP debt, to make it possible for the program to pay
claims for Hurricanes Harvey, Irma, and Maria. FEMA
CRS Insight IN10450, Private Flood Insurance and the
borrowed another $6.1 billion on November 9, 2017, to
National Flood Insurance Program (NFIP).
fund estimated 2017 losses, including those incurred by
Hurricanes Harvey, Irma, and Maria, bringing the debt back
CRS Insight IN10784, National Flood Insurance Program
up to $20.525 billion. As of January 2019, the NFIP has
Borrowing Authority.
$9.9 billion of remaining borrowing authority.
CRS Insight IN10835, What Happens If the National Flood
The NFIP’s debt is conceptually owed by current and future
Insurance Program (NFIP) Lapses?
participants in the NFIP, as the insurance program itself
owes the debt to the Treasury and pays for accruing interest
CRS Insight IN10965, The National Flood Insurance
on that debt through the premium revenues of
Program (NFIP), Reinsurance, and Catastrophe Bonds.
policyholders. Under its current authorization, the only
means the NFIP has to pay off the debt is through the
CRS Insight IN10890, Closing the Flood Insurance Gap.
accrual of premium revenues in excess of outgoing claims,
https://crsreports.congress.gov

---

A Brief Introduction to the National Flood Insurance Program

Diane P. Horn, Analyst in Flood Insurance and Emergency
Management
IF10988


Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.

https://crsreports.congress.gov | IF10988 · VERSION 5 · UPDATED

---