Private Flood Insurance and the National
Flood Insurance Program (NFIP)
Updated October 8, 2020
The National Flood Insurance Program
The NFIP was first authorized by the National Flood Insurance Act of 1968 (42 U.S.C. §4001 et seq.) and
was reauthorized until the end of FY2017 by the Biggert-Waters Flood Insurance Reform Act of 2012
(BW-12; Title II of P.L. 112-141). After a series of short-term reauthorizations, the NFIP was reauthorized
until September 30, 2021 (P.L. 116-159). In statute, Congress has found that
(1) many factors have made it uneconomic for the private insurance industry alone to make flood
insurance available to those in need of such protection on reasonable terms and conditions; but
(2) a program of flood insurance with large-scale participation of the Federal Government and
carried out to the maximum extent practicable by the private insurance industry is feasible and can
be initiated. (42 U.S.C. §4001(b)).
By law or regulation, federal agencies, federally regulated lending institutions, and government-sponsored
enterprises (GSEs) must require certain property owners to purchase flood insurance as a condition of any
mortgage that these entities make, guarantee, or purchase. Property owners are required to purchase flood
insurance if their property is identified as being in a Special Flood Hazard Area (SFHA, which is
equivalent to having a 1% or greater risk of flooding every year) and is in a community that participates
in the NFIP. Historically, this generally has meant such property owners were required to purchase a
Standard Flood Insurance Policy (SFIP) from the NFIP. In BW-12, Congress explicitly provided for
private flood insurance to fulfill this mortgage requirement instead of the SFIP, if the private flood
insurance met the conditions defined further in statute at 42 U.S.C. §4012a(b)(7).
Rulemaking on Accepting Private Flood Insurance
To fulfill the mortgage requirement, a private insurance policy must provide, among other conditions,
“flood insurance coverage which is at least as broad as the coverage provided under a [SFIP] … including
when considering deductibles, exclusions, and conditions offered by the insurer.” Implementation of this
requirement has proved challenging. The responsible federal regulators (the Federal Reserve, Farm Credit
Administration, Federal Deposit Insurance Corporation, National Credit Union Administration, and
Comptroller of the Currency) issued two separate Notices of Proposed Rulemaking (NPRM) addressing
the issue in October 2013 and November 2016. The crux of the implementation issue can be seen as
answering the question of who would judge whether specific policies met the “at least as broad as”
standard and what criteria would be used in making this judgment. The uncertainty as to whether
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particular private policies would meet the standard has been seen as “at odds with” greater private
participation in the flood insurance marketplace.
On February 12, 2019, the regulators announced a final rule implementing the BW-12 “requirement that
regulated lending institutions accept private flood insurance policies.” Of particular note, the rule
 “allows institutions to rely on an insurer’s written assurances in a private flood insurance
policy stating the criteria are met; [and]
 clarifies that institutions may, under certain conditions, accept private flood insurance
policies that do not meet the Biggert-Waters Act criteria.”
The rule took effect on July 1, 2019. Press reports described it as generally welcomed by the banking
industry. It does not apply directly to other federal agencies or to GSEs, which would be subject to
separate rulemaking.
Congressional Legislation
In the 115th Congress, H.R. 2874 and S. 1313 included provisions that would have revised the definition
of private flood insurance, striking existing statutory language requiring private flood insurance to
provide coverage at least as broad as the NFIP in order to meet the mandatory purchase requirements.
Both bills would have revised the definition of private flood insurance previously defined in BW-12 to
require federal agencies to accept private flood insurance from both admitted and nonadmitted (i.e.,
surplus lines) insurers as long as the private insurance coverage “complies with the laws and regulations
of that State.” In revising the definition, both bills clarified that if a property owner purchases private
flood insurance and then decides to return to the NFIP, the owner would be considered to have maintained
continuous coverage. Continuous coverage is required for property owners to retain any subsidies or
cross-subsidies in their NFIP premium rates. A borrower may be reluctant to purchase private insurance if
doing so means they would lose their subsidy should they later decide to return to NFIP coverage. In the
116th Congress, both H.R. 1666 and Section 401 of H.R. 3167 would consider any period during which a
property is covered by a flood insurance policy, either through the NFIP or through a private company, to
be a period of continuous coverage. S. 2187 does not contain any provisions related to continuous
coverage, and neither H.R. 3167 nor S. 2187 includes any provisions related to the definition of private
flood insurance.

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Options for Privatizing Flood Insurance
Section 100232(a) of BW-12 required FEMA and the Government Accountability Office (GAO) to
produce separate studies that “assess a broad range of options, methods, and strategies for privatizing the
[NFIP].” In the GAO study on privatization, GAO reviewed a wide range of strategies to encourage
private flood insurance. The strategies included eliminating subsidies of NFIP premium rates entirely or
providing the subsidies in an explicit form not hidden in the premium; shifting the federal role to
reinsuring primary flood insurance instead of directly providing it; mandating flood coverage in
homeowners insurance policies; and authorizing the NFIP to issue catastrophe bonds to transfer some of
the insured risk.
The required FEMA study on privatization discussed several key challenges that may be presented by
privatizing a larger segment of NFIP policy base, including how to
 maintain the funding of federal flood mapping and flood mitigation programs largely paid
for through SFIP premiums;
 reduce and pay off the billions of dollars of debt NFIP owes to the U.S. Treasury; and
 ensure the affordability and continued availability of flood insurance to property owners
in flood zones.
For further discussion of private insurance and the NFIP, see CRS Report R45242, Private Flood
Insurance and the National Flood Insurance Program.


Author Information

Baird Webel
Diane P. Horn
Acting Section Research Manager
Analyst in Flood Insurance and Emergency Management





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This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
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IN10450 · VERSION 21 · UPDATED

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