Updated December 9, 2021
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
NFIP flood insurance policies are sold only in participating
policy goals: (1) to provide access to primary flood
communities and are offered to both property owners and
insurance, thereby allowing for the transfer of some of the
renters and to residential and nonresidential properties.
financial risk of property owners to the federal government;
NFIP policies have relatively low coverage limits,
and (2) to mitigate and reduce the nation’s comprehensive
particularly for nonresidential properties or properties in
flood risk through the development and implementation of
high-cost areas. The maximum coverage for single-family
floodplain management standards. A longer-term objective
dwellings (which also includes single-family residential
of the NFIP is to reduce federal expenditure on disaster
units within a 2-4 family building) is $100,000 for contents
assistance after floods. As a public insurance program, the
and up to $250,000 for building coverage. The maximum
goals of the NFIP are different from the goals of private-
available coverage limit for other residential buildings is
sector insurance companies. It encompasses social goals to
$500,000 for building coverage and $100,000 for contents
provide flood insurance in flood-prone areas to property
coverage, and the maximum coverage limit for
owners who otherwise would not be able to obtain it and to
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 Mapping
flood-risk information through flood maps, requires
The NFIP approaches the goal of reducing comprehensive
community land-use and building-code standards,
flood risk primarily by requiring participating communities
contributes to community resilience by providing a
to collaborate with FEMA to develop and adopt flood maps
mechanism to fund rebuilding after a flood, and offers
called Flood Insurance Rate Maps (FIRMs). An area of
grants and incentive programs for household- and
specific focus of the FIRM is the Special Flood Hazard
community-level investments in flood-risk reduction.
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 identifying properties whose owners
providing over $1.3 trillion in coverage. The program
are required to purchase flood insurance and establishing
collects about $4 billion in annual premium revenue. Floods
floodplain management standards that communities must
are the most common natural disaster in the United States.
adopt and enforce as part of their participation in the NFIP.
All 50 states, plus DC, Puerto Rico, Guam, American
There is no consistent, definitive timetable for revising and
Samoa, the U.S. Virgin Islands, and the Northern Mariana
updating FIRMs for a particular community. Generally,
Islands have experienced flood events since May 2018.
flood maps may require updating after significant new
building development in or near the flood zone, changes to
Structure of the NFIP
flood-protection systems, or environmental changes in the
The NFIP is managed by the Federal Emergency
community. Statutory guidelines set out the procedure for
Management Agency (FEMA) through its subcomponent,
developing new FIRMs for a community. For example,
the Federal Insurance and Mitigation Administration. A
FEMA is required to conduct extensive communication and
core design feature of the NFIP is that communities are not
outreach efforts with the community during the mapping
required to participate in the program by any law or
process, which includes several review and comment
regulation, but instead participate voluntarily in order to
periods of 30 to 90 days. Communities and individuals also
obtain access to NFIP flood insurance. Communities that
have legal recourse to appeal the FIRM updating process.
choose to participate in the NFIP are required to adopt land
After a map is finalized and adopted by a community, it can
use and control measures with effective enforcement
still be revised to correct for errors in map accuracy. To
provisions and to regulate development in the floodplain.
correct these inaccuracies, FEMA allows individuals and
FEMA has set forth in federal regulations the minimum
communities to request letters amending or revising the
standards required for participation in the NFIP; however,
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
enterprises must require these property owners to purchase
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A Brief Introduction to the National Flood Insurance Program
flood insurance as a condition of any mortgage that these
been cancelled, although Congress appropriated funds
entities make, guarantee, or purchase. To comply with this
between 1980 and 1985 to repay NFIP debt.
mandate, property owners may purchase flood insurance
Risk Rating 2.0
through the NFIP or through a private company, as long as
FEMA is introducing a new pricing methodology, known as
the private flood insurance meets the condition set by
Risk Rating 2.0, which represents the biggest change to the
statute that it “provides flood insurance coverage which is
at least as broad as the coverage” of the NFIP, among other
way the NFIP calculates flood insurance premiums since
the program began in 1968. Premiums calculated under
conditions. The mandatory purchase requirement is
Risk Rating 2.0 will reflect an individual property’s flood
enforced by the lender, rather than FEMA. Property owners
risk, reflect more types of flood risk, and set risk-based
who do not obtain flood insurance when required may find
rates. New policies written on or after October 1, 2021, are
they are not eligible for certain types of disaster assistance
after a flood.
calculated using the new rating methodology. All existing
policies renewing on or after April 1, 2022, will be
Financial Standing of the NFIP
calculated using Risk Rating 2.0 methodology.
The NFIP is funded from premiums, fees, and surcharges
paid by NFIP policyholders; direct annual appropriations
Reauthorization of the NFIP
for specific costs of the NFIP (currently only for the flood
Since the end of FY2017, 18 short-term NFIP
hazard mapping and risk analysis program); and borrowing
reauthorizations have been enacted. The NFIP is currently
from the Treasury when the balance of the National Flood
authorized until February 18, 2022. The statute for the
Insurance Fund is insufficient to pay the NFIP’s obligations
NFIP does not contain a comprehensive expiration,
(e.g., insurance claims). The NFIP was not designed to
termination, or sunset provision for the whole of the
retain funding to cover claims for truly extreme events;
program. Rather, the NFIP has multiple different legal
instead, the statute allows the program to borrow money
provisions that generally tie to the expiration of key
from the Treasury for such events. For most of the NFIP’s
components of the program. Unless reauthorized or
history, the program was able to borrow relatively small
amended by Congress, the following will occur on February
amounts from the Treasury to pay claims and then repay the
18, 2022: (1) the authority to provide new flood insurance
loans with interest. However, this changed when Congress
contracts will expire; however, insurance contracts entered
increased the level of NFIP borrowing to $20.775 billion to
into before the expiration would continue until the end of
pay claims in the aftermath of the 2005 hurricane season
their policy term of one year; and (2) the authority for NFIP
(particularly Hurricanes Katrina, Rita, and Wilma).
to borrow funds from the Treasury will be reduced from
Congress increased the borrowing limit again following
$30.425 billion to $1 billion.
Hurricane Sandy to its current limit of $30.425 billion.
CRS Products About the NFIP
CRS Report R44593, Introduction to the National Flood
The 2017 hurricane season was the second-largest claims
year in the NFIP’s history—
Insurance Program (NFIP).
second only to the 2005
hurricane season. At the beginning of the 2017 hurricane
CRS Report R45999, National Flood Insurance Program:
season, the NFIP owed $24.6 billion. On September 22,
The Current Rating Structure and Risk Rating 2.0.
2017, the NFIP borrowed the remaining $5.825 billion from
the Treasury to cover claims from Hurricane Harvey,
reaching the NFIP’s autho
CRS Report R46095, The National Flood Insurance
rized borrowing limit of $30.425
Program: Selected Issues and Legislation in the 116th
billion. On October 26, 2017, Congress cancelled $16
Congress.
billion of NFIP debt to make it possible for the program to
pay claims for Hurricanes Harvey, Irma, and Maria. FEMA
CRS Report R45242, Private Flood Insurance and the
borrowed another $6.1 billion on November 9, 2017, to
National Flood Insurance Program.
fund estimated 2017 losses, including those incurred by
Hurricanes Harvey, Irma, and Maria, bringing the debt back
CRS Insight IN10450, Private Flood Insurance and the
up to $20.525 billion. The NFIP has not needed to borrow
National Flood Insurance Program (NFIP).
from the Treasury since 2017. As of October 2021, the
NFIP has $9.9 billion of remaining borrowing authority, as
CRS Insight IN10784, National Flood Insurance Program
well as possible reinsurance payments of up to $2.9 billion.
Borrowing Authority.
The NFIP’s debt is conceptually owed by current and future
CRS Insight IN10835, What Happens If the National Flood
participants in the NFIP, as the insurance program itself
Insurance Program (NFIP) Lapses?
owes the debt to the Treasury and pays for accruing interest
on that debt through the premium revenues of
CRS Insight IN10965, The National Flood Insurance
policyholders. Under its current authorization, the only
Program (NFIP), Reinsurance, and Catastrophe Bonds.
means the NFIP has to pay off the debt is through the
accrual of premium revenues in excess of outgoing claims,
CRS Insight IN10784, National Flood Insurance Program
and from payments made out of the reserve fund. For
Borrowing Authority.
example, since 2005 the NFIP has paid $2.82 billion in
principal repayments and $5.26 billion in interest to service
the debt through the premiums collected on insurance
Diane P. Horn, Analyst in Flood Insurance and Emergency
policies. The cancellation of $16 billion of NFIP debt in
Management
October 2017 represents the first time that NFIP debt has
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A Brief Introduction to the National Flood Insurance Program

IF10988


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https://crsreports.congress.gov | IF10988 · VERSION 17 · UPDATED

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