INSIGHTi
A Brief Introduction to the National Flood
Insurance Program: Homeland Security Issues
in the 116th Congress
Updated October 6, 2020
The National Flood Insurance Program (NFIP) is authorized by the National Flood Insurance Act of 1968
(Title XIII of P.L. 90-448, as amended, 42 U.S.C. §§4001 et seq.) and 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 from 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. The NFIP 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.
The NFIP has more than 5 million flood insurance policies providing over $1.3 trillion in coverage, with
22,493 communities in 56 states and jurisdictions participating. Floods are the most common natural
disaster in the United States, and 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.
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CRS INSIGHT
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Structure of the NFIP
The NFIP is managed by the Federal Emergency Management Agency (FEMA) through its
subcomponent, the Federal Insurance and Mitigation Administration. Communities are not legally
required to participate in the program; they participate voluntarily to obtain access to NFIP flood
insurance. Communities choosing 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 if they are adopted and enforced by a state or local government.
Legal enforcement of floodplain management standards is the responsibility of participating NFIP
communities, which also can elect to adopt higher standards to mitigate flood risk. 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).
Property owners in the mapped Special Flood Hazard Area (SFHA), defined as an area with a 1% annual
chance of flooding, are required to purchase flood insurance as a condition of receiving a federally backed
mortgage. This 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 after a flood.
Financial Standing of the NFIP
The NFIP is funded from (1) premiums, fees, and surcharges paid by NFIP policyholders; (2) annual
appropriations for flood-hazard mapping and risk analysis; (3) 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); and (4) reinsurance proceeds if NFIP losses are sufficiently large. 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 borrowing limit 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 in 2013, after Hurricane Sandy, to the current limit of $30.425 billion.
The 2017 hurricane season was the second-largest claims year in the NFIP’s history, with approximately
$10.15 billion paid to date in response to Hurricanes Harvey, Irma, and Maria. 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
borrowing limit. On October 26, 2017, Congress canceled $16 billion of NFIP debt in order to pay claims
for Hurricanes Harvey, Irma, and Maria. FEMA borrowed another $6.1 billion on November 9, 2017,
bringing the debt back up to $20.525 billion. As of October 2020, the NFIP has $9.9 billion of remaining
borrowing authority. The NFIP transfers a portion of its risk to the private sector through the purchase of
reinsurance and the issuance of catastrophe bonds.
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. Since 2005, the NFIP has paid $2.82 billion in principal repayments
and $4.8 billion in interest to service the debt through the premiums collected on insurance policies. The
program paid $415.34 million in interest in FY2019. The October 2017 cancellation of $16 billion of
NFIP debt represents the first time NFIP debt has been cancelled.
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NFIP Reauthorization
Since the end of FY2017, Congress has enacted 16 short-term NFIP reauthorizations. The NFIP is
currently authorized until September 30, 2021. 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 September 30, 2021: (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, and (2) the authority for the NFIP to borrow
funds from the Treasury will be reduced from $30.425 billion to $1 billion.
Author Information
Diane P. Horn
Analyst in Flood Insurance and Emergency Management
Disclaimer
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IN11049 · VERSION 11 · UPDATED