INSIGHTi
What Happens If the National Flood
Insurance Program (NFIP) Lapses?
Updated October 4, 2021
This Insight provides a short overview of what would happen if the National Flood Insurance Program
(NFIP) were not to be reauthorized by December 3, 2021, and al owed to lapse.
Expiration of Certain NFIP Authorities
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.). The NFIP does not contain a single
comprehensive expiration, termination, or sunset provision for the whole of the program. Rather, the
NFIP has multiple different legal provisions that tie to the expiration of key components of the program.
Since the end of FY2017, 17 short-term NFIP reauthorizations have been enacted. The NFIP is currently
authorized until December 3, 2021. Authorization of the NFIP was extended from September 30 until
December 8, 2017 (P.L. 115-56), extended until December 22, 2017 (P.L. 115-90), and again until January
19, 2018 (P.L. 115-96). The NFIP lapsed between January 20 and January 22, 2018, and received a fourth
short-term reauthorization until February 8, 2018 (P.L. 115-120). This legislation also authorized FEMA
to honor al policy-related transactions accepted during the NFIP lapse. The NFIP lapsed again for
approximately eight hours during a brief government shutdown in the early morning of February 9, 2018,
and was then reauthorized until March 23, 2018 (P.L. 115-123). The NFIP received a 6th reauthorization
until July 31, 2018 (P.L. 115-141), a 7th until November 30, 2018 (P.L. 115-225), an 8th until December 7,
2018 (P.L. 115-281), a 9th until December 21, 2018 (P.L. 115-298), a 10th until May 31, 2019 (P.L. 115-
396), an 11th until June 14, 2019 (P.L. 116-19), a 12th until September 30, 2019 (P.L. 116-20), a 13th until
November 21, 2019 (P.L. 116-59), a 14th until December 20, 2019 (P.L. 116-69), a 15th until September
30, 2020 (P.L. 116-94), a 16th reauthorization until September 30, 2021 (P.L. 116-159), and a 17th
reauthorization until December 3,2021 (P.L. 117-43).
The cancel ation of $16 bil ion of NFIP debt (P.L. 115-72) had no effect on the impact of a lapse of NFIP
authorization. Unless reauthorized or amended by Congress, the following wil occur on December 30,
2021:
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The authority to provide new flood insurance contracts wil expire. Flood insurance
contracts entered into before the expiration would continue until the end of their policy
term of one year.
The authority for NFIP to borrow funds from the Treasury wil be reduced from $30.425
bil ion to $1 bil ion.
Other activities of the program would technical y remain authorized, such as the issuance of Flood
Mitigation Assistance Grants. However, the expiration of the key authorities listed above would have
potential y significant impacts on the remaining NFIP activities.
The NFIP is the primary source of flood insurance coverage for residential properties in the United States.
The NFIP has more than 5 mil ion flood insurance policies providing over $1.3 tril ion in coverage, with
22,522 communities in 56 states and jurisdictions participating. The program collects about $4 bil ion in
annual premium revenue and fees.
If there were to be a lapse in authorization on or after September 30, 2021, and the borrowing authority is
reduced to $1 bil ion, FEMA would continue to adjust and pay claims as premium dollars come into the
National Flood Insurance Fund (NFIF) and reserve fund. If the funds available to pay claims were to be
depleted, claims would have to wait until sufficient premiums were received to pay them unless Congress
were to appropriate supplemental funds to the NFIP to pay claims or increase the borrowing limit.
The Mandatory Purchase Requirement
The expiration of the NFIP’s authority to provide new flood insurance contracts has potential y significant
implications due to the mandatory purchase requirement (MPR). By law or regulation, federal agencies,
federal y regulated lending institutions, and government-sponsored enterprises must require certain
property owners to purchase flood insurance as a condition of any mortgage that these entities make,
guarantee, or purchase. Property owners, both residential and commercial, 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 an estimated 1% or greater risk of flooding every year) and is in a community that
participates in the NFIP. Without available flood insurance, real estate transactions in an SFHA potential y
would be significantly hampered.
In the Biggert-Waters Flood Insurance Reform Act of 2012 (Title II of P.L. 112-141), Congress explicitly
al owed federal agencies to accept private flood insurance to fulfil the MPR if the private flood insurance
met the conditions defined in statute. Although the private flood insurance market is growing, the MPR is
stil general y met through NFIP coverage. FEMA does not enforce the MPR, but lenders must continue
their regulatory requirements during a lapse, including MPR enforcement.
Past Lapses of the NFIP
The NFIP was extended 17 times between 2008 and 2012, and lapsed 4 times: March 1 to March 2, 2010;
March 29 to April 15, 2010; June 1 to July 2, 2010; and October 1 to October 5, 2011. In most cases when
the NFIP lapsed, Congress reauthorized the NFIP retroactively. During these NFIP lapses, the FDIC
issued guidance to lending institutions, and the Federal Reserve also issued informal guidance to lenders.
FEMA provided guidance for the Write-Your-Own (WYO) Program, where private insurance companies
are paid to write and service NFIP policies.
In past NFIP lapses, borrowers were not able to obtain flood insurance to close, renew, or increase loans
secured by property in an SFHA until the NFIP was reauthorized. During the lapse in June 2010,
estimates suggest over 1,400 home sale closings were cancel ed or delayed each day, representing over
40,000 sales per month. These figures applied to residential properties, but commercial properties were
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also affected by the NFIP lapse. In addition, the largest WYO insurer left the NFIP in 2011, reportedly
because of the administrative burden associated with very short-term reauthorizations and lapses in
authorization. Although no detailed analysis of the NFIP lapses in 2010 and 2011 has been undertaken,
the economic impact could have been broader than the reported effects on the domestic real estate market.
Author Information
Diane P. Horn
Analyst in Flood Insurance and Emergency Management
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.
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