Updated December 30, 2019
A Brief Introduction to the National Flood Insurance Program
The National Flood Insurance Program (NFIP) is the
communities to adopt more rigorous floodplain
primary source of flood insurance coverage for residential
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 nonresidential 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 nonresidential 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
reduce the government’s cost after floods. The NFIP also
nonresidential 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 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 about $4 billion in annual premium revenue. Floods
insurance and establishing floodplain management
are the most common natural disaster in the United States.
standards that communities must adopt and enforce as part
All 50 states, plus DC, Puerto Rico, Guam, American
of their participation in the NFIP. There is no consistent,
Samoa, the U.S. Virgin Islands, and the Northern Mariana
definitive timetable for revising and updating FIRMs for a
Islands have experienced flood events since May 2018.
particular community. Generally, flood maps may require
updating after significant new building development in or
Structure of the NFIP
near the flood zone, changes to flood-protection systems, or
The NFIP is managed by the Federal Emergency
environmental changes in the community. Statutory
Management Agency (FEMA) through its subcomponent,
guidelines set out the procedure for developing new FIRMs
the Federal Insurance and Mitigation Administration. A
for a community. For example, FEMA is required to
core design feature of the NFIP is that communities are not
conduct extensive communication and outreach efforts with
required to participate in the program by any law or
the community during the mapping process, which includes
regulation, but instead participate voluntarily in order to
several review and comment periods of 30 to 90 days.
obtain access to NFIP flood insurance. Communities that
Communities and individuals also have legal recourse to
choose to participate in the NFIP are required to adopt land
appeal during the FIRM updating process. After a map is
use and control measures with effective enforcement
finalized and adopted by a community, it can still be
provisions and to regulate development in the floodplain.
revised to correct for errors in map accuracy. To correct
FEMA has set forth in federal regulations the minimum
these inaccuracies, FEMA allows individuals and commun-
standards required for participation in the NFIP; however,
ities to request letters amending or revising the flood map.
these standards have the force of law only because they are
adopted and enforced by a state or local government. Legal
The Mandatory Purchase Requirement
enforcement of the floodplain management standards is the
In a community that participates or has participated in the
responsibility of the participating NFIP community, which
NFIP, property owners in the mapped SFHA are required to
can elect to adopt higher standards as a means of mitigating
purchase flood insurance as a condition of receiving a
flood risk. In addition, FEMA operates a program, called
federally backed mortgage. Federal agencies, federally
the Community Rating System, to incentivize NFIP
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
the debt through the premiums collected on insurance
flood insurance as a condition of any mortgage that these
policies. The cancellation of $16 billion of NFIP debt in
entities make, guarantee, or purchase. To comply with this
October 2017 represents the first time that NFIP debt has
mandate, property owners may purchase flood insurance
been cancelled, although Congress appropriated funds
through the NFIP or through a private company, as long as
between 1980 and 1985 to repay NFIP debt.
the private flood insurance meets the condition set by
statute that it “provides flood insurance coverage which is
Reauthorization of the NFIP
at least as broad as the coverage” of the NFIP, among other
Since the end of FY2017, 15 short-term NFIP
conditions. The mandatory purchase requirement is
reauthorizations have been enacted. The NFIP is currently
enforced by the lender, rather than FEMA. Property owners
authorized until September 30, 2020. Three bills have been
who do not obtain flood insurance when required may find
introduced in the 116th Congress to provide a longer-term
they are not eligible for certain types of disaster assistance
reauthorization of the NFIP and numerous other changes to
after a flood.
the program. H.R. 3167, the National Flood Insurance
Program Reauthorization Act of 2019, was introduced on
Financial Standing of the NFIP
June 6, 2019, and reported favorably by the House
The NFIP is funded from premiums, fees, and surcharges
Financial Services Committee five days later, following a
paid by NFIP policyholders; direct annual appropriations
unanimous vote. S. 2187, the National Flood Insurance
for specific costs of the NFIP (currently only for the flood
Program Reauthorization and Reform Act of 2019, was
hazard mapping and risk analysis program); and borrowing
introduced on July 18, 2019, with a companion bill, H.R.
from the Treasury when the balance of the National Flood
3872, introduced on July 22, 2019.
Insurance Fund is insufficient to pay the NFIP’s obligations
(e.g., insurance claims). The NFIP was not designed to
The statute for the NFIP does not contain a comprehensive
retain funding to cover claims for truly extreme events;
expiration, termination, or sunset provision for the whole of
instead, the statute allows the program to borrow money
the program. Rather, the NFIP has multiple different legal
from the Treasury for such events. For most of the NFIP’s
provisions that generally tie to the expiration of key
history, the program was able to borrow relatively small
components of the program. Unless reauthorized or
amounts from the Treasury to pay claims and then repay the
amended by Congress, the following will occur on
loans with interest. However, this changed when Congress
September 30, 2020: (1) the authority to provide new flood
increased the level of NFIP borrowing to $20.775 billion to
insurance contracts will expire; however, insurance
pay claims in the aftermath of the 2005 hurricane season
contracts entered into before the expiration would continue
(particularly Hurricanes Katrina, Rita, and Wilma).
until the end of their policy term of one year; and (2) the
Congress increased the borrowing limit again following
authority for NFIP to borrow funds from the Treasury will
Hurricane Sandy to its current limit of $30.425 billion.
be reduced from $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. At the beginning of the 2017 hurricane
Insurance Program (NFIP).
season, the NFIP owed $24.6 billion. On September 22,
2017, the NFIP borrowed the remaining $5.825 billion from
CRS Report R46095, The National Flood Insurance
the Treasury to cover claims from Hurricane Harvey,
Program: Selected Issues and Legislation in the 116th
reaching the NFIP’s authorized borrowing limit of $30.425
Congress.
billion. On October 26, 2017, Congress cancelled $16
billion of NFIP debt to make it possible for the program to
CRS Report R45242, Private Flood Insurance and the
pay claims for Hurricanes Harvey, Irma, and Maria. FEMA
National Flood Insurance Program.
borrowed another $6.1 billion on November 9, 2017, to
fund estimated 2017 losses, including those incurred by
CRS Insight IN10450, Private Flood Insurance and the
Hurricanes Harvey, Irma, and Maria, bringing the debt back
National Flood Insurance Program (NFIP).
up to $20.525 billion. As of August 2019, the NFIP has
$9.9 billion of remaining borrowing authority and has paid
CRS Insight IN10784, National Flood Insurance Program
$10.15 billion in claims in response to Hurricanes Harvey,
Borrowing Authority.
Irma, and Maria and $952.5 million in claims for the 2018
hurricanes, Florence and Michael.
CRS Insight IN10835, What Happens If the National Flood
Insurance Program (NFIP) Lapses?
The NFIP’s debt is conceptually owed by current and future
participants in the NFIP, as the insurance program itself
CRS Insight IN10965, The National Flood Insurance
owes the debt to the Treasury and pays for accruing interest
Program (NFIP), Reinsurance, and Catastrophe Bonds.
on that debt through the premium revenues of
policyholders. Under its current authorization, the only
CRS Insight IN10890, Closing the Flood Insurance Gap.
means the NFIP has to pay off the debt is through the
accrual of premium revenues in excess of outgoing claims,
Diane P. Horn, Analyst in Flood Insurance and Emergency
and from payments made out of the reserve fund. For
Management
example, since 2005 the NFIP has paid $2.82 billion in
principal repayments and $4.2 billion in interest to service
IF10988
https://crsreports.congress.gov

---

A Brief Introduction to the National Flood Insurance Program


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 12 · UPDATED

---