Introduction to the National Flood Insurance
Program (NFIP)
Updated December 9, 2021
Congressional Research Service
https://crsreports.congress.gov
R44593

Introduction to the National Flood Insurance Program (NFIP)

Summary
The National Flood Insurance Program (NFIP) was established by the National Flood Insurance
Act of 1968 (NFIA; 42 U.S.C. §4001 et seq.) and was most recently reauthorized to February 18,
2022, through a series of short-term reauthorizations. The general purpose of the NFIP is both to
offer primary flood insurance to properties with significant flood risk, and to reduce flood risk
through the adoption of floodplain management standards. Communities volunteer to participate
in the NFIP in order to have access to federal flood insurance, and in return are required to adopt
minimum standards.
The NFIP is managed by the Federal Emergency Management Agency (FEMA), through its
subcomponent the Federal Insurance and Mitigation Administration (FIMA). FEMA manages a
Risk Mapping, Assessment and Planning (Risk MAP) process to produce Flood Insurance Rate
Maps (FIRMs). Depicted on FIRMs are Special Flood Hazard Areas (SFHAs), which are areas
exposed to a 1% or greater risk of annual flooding. FIRMs vary in age across the country, and are
updated on a prioritized basis. The Risk MAP process provides extensive outreach and appeal
opportunities for communities. Updating a community’s FIRMs can take three to five years or
more. Participating communities must adopt a flood map and enact minimum floodplain
standards to regulate development in the SFHA. FEMA encourages communities to enhance their
floodplain standards by offering reduced premium rates through the Community Rating System
(CRS). FEMA also manages a Flood Mitigation Assistance (FMA) grant program using NFIP
revenues to further reduce comprehensive flood risk. Participating communities that fail to adopt
FIRMs or maintain minimum floodplain standards can be put on probation or suspended from the
NFIP. In communities that do not participate in the NFIP, or have been suspended, individuals
cannot purchase NFIP insurance. Individuals in these communities also face chal enges receiving
federal disaster assistance in flood hazard areas, and have difficulties receiving federal y backed
mortgages.
NFIP insurance uses one of three types of Standard Flood Insurance Policies (SFIPs). SFIPs have
maximum coverage limits set by law. Any federal entity that makes, guarantees, or purchases
mortgages must, by law, require property owners in the SFHA to purchase flood insurance,
general y through the NFIP. In moderate risk areas, community members may purchase Preferred
Risk Policies (PRPs) that offer less costly insurance. The day-to-day sale, servicing, and claims
processing of NFIP policies are conducted by private industry partners. Most policies are serviced
by companies that are reimbursed through the Write Your Own (WYO) Program.
The premium rate for most NFIP policies is intended to reflect the true flood risk. However,
Congress has directed FEMA to subsidize flood insurance for properties built before the
community’s first FIRM (i.e., the pre-FIRM subsidy). In addition, FEMA “grandfathers”
properties at their rate from past FIRMs to updated FIRMs through a cross-subsidy.
Congress has provided appropriations to the NFIP for some of the cost of Risk MAP. Congress
also authorizes the use of premium revenues for other NFIP costs, including administration,
salaries, and other expenses. NFIP premiums also include other charges, such as a Federal Policy
Fee, a Reserve Fund assessment, and a surcharge to help fund the NFIP. In October 2017,
Congress cancel ed $16 bil ion of NFIP debt, making it possible for the program to pay claims for
Hurricanes Harvey, Irma, and Maria. The NFIP currently owes $20.525 bil ion to the U.S.
Treasury, leaving $9.9 bil ion in borrowing authority from a $30.425 bil ion limit in law. This
debt is serviced by the NFIP and interest is paid through premium revenues.
After February 18, 2022, key authorities of the NFIP, such as the authority to issue new insurance
contracts, wil expire if they are not reauthorized by Congress.
Congressional Research Service

link to page 34 link to page 34 Introduction to the National Flood Insurance Program (NFIP)

Contacts
Author Information ....................................................................................................... 30
Acknowledgments......................................................................................................... 30

Congressional Research Service

link to page 33 Introduction to the National Flood Insurance Program (NFIP)

Introduction
The National Flood Insurance Program (NFIP) was created by the National Flood Insurance Act
of 1968 (NFIA).1 Since the end of FY2017, 18 short-term NFIP reauthorizations have been
enacted (see Table 6). The NFIP is currently authorized until February 18, 2022.2
The last long-term reauthorization of the NFIP was by the Biggert-Waters Flood Insurance
Reform Act of 2012 (hereinafter BW-12),3 from July 6, 2012, to September 30, 2017. Congress
amended elements of BW-12, but did not extend the NFIP’s authorization further, in the
Homeowner Flood Insurance Affordability Act of 2014 (HFIAA).4 The NFIP is managed by the
Federal Emergency Management Agency (FEMA), through its subcomponent the Federal
Insurance and Mitigation Administration (FIMA). As of December 2021, the NFIP had more than
5 mil ion flood insurance policies providing over $1.3 tril ion in coverage. The program collects
about $4.6 bil ion in revenue from policyholders’ premiums, fees, and surcharges.5 National y, as
of December 2021, over 22,000 communities in 56 states and jurisdictions participated in the
NFIP.6 According to FEMA, the program saves the nation an estimated $1.87 bil ion annual y in
flood losses avoided because of the NFIP’s building and floodplain management regulations.7
This report provides introductory information on key components of the NFIP, ranging from
floodplain mapping to the standard flood insurance forms. This report wil be updated as
significant revisions are made to the NFIP through legislation or administrative action. However,
this report does not provide detail on current or future legislative issues for Congress, which are
covered in a separate report.8
Purpose of the NFIP
In the original NFIP statute, Congress stipulated that “a program of flood insurance can promote
the public interest by providing appropriate protection against the perils of flood losses and
encouraging sound land use by minimizing exposure of property to flood losses.”9 Congress had
found that post-disaster flood losses, and the subsequent federal disaster relief assistance to help
communities recover from those flood losses, had “placed an increasing burden on the Nation’s
resources” and that as a matter of national policy “a reasonable method of sharing the risk of
flood losses is through a program of flood insurance which can complement and encourage

1 T itle XIII of P.L. 90-448, as amended, 42 U.S.C. §4001 et seq.
2 P.L. 117-70.
3 T itle II of P.L. 112-141.
4 P.L. 113-89.
5 Statistics on the NFIP policy and claims are available from FEMA, The Watermark: National Flood Insurance
Program Financial Statem ents, at https://www.fema.gov/flood-insurance/work-with-nfip/watermark-financial-
statements, and from FEMA’s website at https://nfipservices.floodsmart.gov//reports-flood-insurance-data.
6 Detailed information about which communities participate and where is available from the Community Status Book,
found on FEMA’s website at https://www.fema.gov/flood-insurance/work-with-nfip/community-status-book.
7 U.S. Government Accountability Office, Flood Insurance: Comprehensive Reform Could Improve Solvency and
Enhance Resilience, GAO-17-425, April 2017, p. 5, https://www.gao.gov/assets/690/684354.pdf.
8 CRS Report R46095, The National Flood Insurance Program: Selected Issues and Legislation in the 116th Congress,
by Diane P. Horn and Baird Webel.
9 See 82 Stat. 573 for text in original statute (§1302(c) of P.L. 90 -448). T his language remains in statute (see 42 U.S.C.
§4001(c)).
Congressional Research Service

1

Introduction to the National Flood Insurance Program (NFIP)

preventive and protective measures.”10 At the time of establishment of the NFIP, as is general y
stil the case today, it was found that “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.”11
Thus, the NFIP essential y has two interrelated policy purposes that can be summarized as
1. to provide access to primary flood insurance, thereby al owing for the transfer of
some of the financial risk of property owners to the federal government, and
2. to mitigate and reduce the nation’s comprehensive flood risk12 through the
development and implementation of floodplain management standards.
A core design feature of the NFIP is that communities are not required to participate in the
program by any law or other regulation.13 Rather, communities in the United States voluntarily
participate in the NFIP general y as a means of securing access to the primary flood insurance
offered by the NFIP. Essential y, the NFIP is structured so that the availability of primary flood
insurance through the NFIP (purpose #1 from above) is tied to the adoption and enforcement of
floodplain management standards by participating communities (purpose #2). FEMA is only
al owed to provide flood insurance to “those States or areas (or subdivisions thereof)” where
“adequate land use and control measures” have been adopted that “are consistent with the
comprehensive criteria for land management and use developed” by the NFIP.14 Thus,
communities that participate in the NFIP, and therefore whose residents may access the NFIP’s
primary flood insurance, also adopt through local or state laws minimum floodplain management
standards that are described in FEMA regulations.
Reduction of Comprehensive Flood Risk
The NFIP accomplishes the goal of reducing comprehensive flood risk primarily by requiring
participating communities to
 collaborate with FEMA to develop and adopt flood maps cal ed Flood Insurance
Rate Maps (FIRMs), and
 enact minimum floodplain standards based on those flood maps.
In addition, premiums collected from the sale of insurance in the NFIP finance a Flood Mitigation
Assistance (FMA) grant program that reduces overal flood risk. This section of the report briefly
discusses each of these means of reducing comprehensive flood risk.

10 See 82 Stat. 573 for text in original statute (§1302(a) of P.L. 90 -448). T his language remains in statute (see 42 U.S.C.
§4001(a)).
11 See 82 Stat. 573 for text in original statute (§1302(b)(1) of P.L. 90 -448). T his language remains in statute (see 42
U.S.C. §4001(b)(1)).
12 In the context of this report, comprehensive flood risk means that the risk includes both financial risk (i.e., physical
damage to property), but also the risk to human life.
13 44 C.F.R. §59.1 defines community as
any State or area or political subdivision thereof, or any Indian tribe or authorized tribal
organization, or Alaska Native village or authorized native organization, which has authority to
adopt and enforce flood plain management regulations for the areas within its jurisdiction.
14 42 U.S.C. §4012(c)(2).
Congressional Research Service

2

link to page 7 Introduction to the National Flood Insurance Program (NFIP)

Risk Mapping, Assessment, and Planning (Risk MAP) and Flood
Insurance Rate Maps (FIRMs)
FEMA is responsible for undertaking Flood Insurance Studies (FISs) nationwide to identify areas
within the United States having special flood, mudslide, and flood-related erosion hazards; assess
the flood risk; and designate insurance zones.15 FEMA develops, in coordination with
participating communities, flood maps cal ed FIRMs using these FISs that depict the
community’s flood risk and floodplain. In BW-12, Congress revised the authorities of FEMA as it
relates to flood hazard mapping to formal y establish what FEMA has cal ed the Risk Mapping,
Assessment and Planning (Risk MAP) process.16 Though formal y authorized in BW-12, FEMA
started the Risk MAP process at the request of Congress in 2009.17 While FEMA is largely
responsible for the creation of the FIRM, the community itself must pass the map into its local or
state law in order for the map to be effective.
Flood Zones
An area of specific focus on the FIRM is the Special Flood Hazard Area (SFHA). The SFHA is
intended to distinguish the flood risk zones that have a chance of flooding during a “1 in 100 year
flood” or greater frequency. This means that properties in the SFHA have a risk of 1% or greater
risk of flooding every year. Table 1 shows flood-risk zones that are depicted on the FIRMs.
Zones A (A1-30), AE, AH, AO, V, VE, VO, and V1-30 constitute the designated SFHA on the
community’s FIRM. V zones are distinguished from A zones in that V zones are subject to wave
action (i.e., coastal flooding). Two other designations for classifying zones in the SFHA are the
Zone AR, which is an area where a levee or similar structure is determined not to provide
sufficient flood protection, but is undergoing restoration; and the Zone A99, an area where a
federal flood protection structure is under construction to provide the necessary flood protection
standard.
Table 1. Flood Zones as Depicted on Flood Insurance Rate Maps (FIRMs)
Zone Symbol
Description
A
Area of special flood hazard without water surface elevations determined.
A1-30, AE
Area of special flood hazard with water surface elevations determined.
AO
Area of special flood hazards having shal ow water depths and/or unpredictable flow paths
between 1 and 3 ft.
A99
Area of special flood hazard where enough progress has been made on a protective system,
such as dikes, dams, and levees, to consider it complete for insurance rating purposes.
AH
Areas of special flood hazards having shal ow water depths and/or unpredictable flow paths
between 1 and 3 feet, and with water surface elevations determined.

15 See 42 U.S.C. §4101 and 44 C.F.R. Part 65.
16 §100216 of P.L. 112-141, 126 Stat. 927, as codified at 42 U.S.C. §4101b.
17 Congress called for the creation of a new five-year National Flood Map Maintenance Plan for FY2010 -FY2014 in
the Explanatory Statement which accompanied the Department of Homeland Security Appropriations Act, 2009 ( P.L.
110-329). For the initial Risk MAP plan, see FEMA, Risk Mapping, Assessm ent, and Planning (Risk MAP) Multi-Year
Plan: Fiscal Years 2010-2014, March 16, 2009, at http://www.fema.gov/media-library-data/20130726-1650-20490-
4732/fema_risk_map_plan.pdf.
Congressional Research Service

3

Introduction to the National Flood Insurance Program (NFIP)

Zone Symbol
Description
AR
Area of special flood hazard that results from the decertification of a previously accredited
flood protection system that is determined to be in the process of being restored to provide
base flood protection.
V
Area of special flood hazards without water surface elevations determined, and with velocity,
that is inundated by tidal floods (coastal high hazard area).
V1-30, VE
Area of special flood hazards, with water surface elevations determined and with velocity, that
is inundated by tidal floods (coastal high hazard area).
VO
Area of special flood hazards having shal ow water depths and/or unpredictable flow paths
between 1 and 3 ft. and with velocity.
B, X
Areas of moderate flood hazards or areas of future-conditions flood hazard.
C, X
Area of minimal hazards.
D
Area of undetermined, but possible, flood hazards.
M
Area of special mudslide (i.e., mudflow) hazards.
N
Area of moderate mudslide (i.e., mudflow) hazards.
P
Area of undetermined, but possible, mudslide hazards.
E
Area of special flood-related erosion hazards.
Source: Adapted from 44 C.F.R. §60.3 by CRS.
Updating Flood Maps
Flood maps adopted across the country vary considerably in age and in quality. While some
FIRMs may have last been developed and adopted by a community in the 1980s, especial y in
rural areas of the country, most communities wil have maps adopted within the past 15 to 20
years.18 Al official FIRMs can be accessed, and are searchable by address and location, on a
FEMA website cal ed the Map Service Center,19 and modern FIRMs can be digital y viewed via
the Geographic Information System in the National Flood Hazard Layer.20
There is no consistent, definitive timetable for when a particular community wil have their maps
revised and updated. FEMA uses a process cal ed the Coordinated Needs Management Strategy to
prioritize, identify, and track the lifecycle of mapping needs of Risk MAP.21 General y, flood
maps may require updating when there have been significant new building developments in or
near the flood zone, changes to flood protection systems (e.g., levees and sand dunes), and
environmental changes in the community. Because of the variability in how and when a FIRM is
updated, for example, one community may be undergoing the process of updating its map while a

18 By law, FEMA is required to “assess the need to revise and update all floodplain areas and flood risk zones” every
five years, but not necessarily update the maps. See 42 U.S.C. §4101(e).
19 See the Map Service Center website at https://msc.fema.gov/portal/home. In addition, one can review the last
revision date of a community’s Flood Insurance Rate Map (FIRM) in the Community Status Book found at
https://www.fema.gov/flood-insurance/work-with-nfip/community-status-book.
20 For more on the NFHL, and directions for accessing it, see FEMA’s website at https://www.fema.gov/flood-maps/
tools-resources/flood-map-products/national-flood-hazard-layer.
21 For more, see FEMA, Coordinated Needs Management Strategy, at https://www.fema.gov/flood-maps/tools-
resources/risk-map/coordinated-needs-management -strategy.
Congressional Research Service

4

Introduction to the National Flood Insurance Program (NFIP)

neighboring community is not, and one community may have had its map last updated in 2020
while a neighboring community had its last revised in 2005, etc.
There are statutory guidelines for how FEMA is al owed to develop new FIRMs for a community.
These guidelines require, for example, FEMA to conduct extensive communication and outreach
efforts with the community during the mapping process and include various minimum waiting
periods after intermediary steps are taken in the process.22 In addition, during this process,
communities are asked to submit pertinent data concerning their flood hazards, flooding
experience, mitigation plans to avoid potential flood hazards, and estimates of historical and
prospective economic impacts flooding has had on the community.23 General y, FEMA seeks to
make the Risk MAP process a collaborative process with local communities to encourage a joint
sense of “ownership” of the maps. There are also legal requirements al owing communities and
individuals to appeal during the process of updating FIRMs.24 This appeal process now includes
the option, first authorized in BW-12, for communities to appeal to a Scientific Resolution Panel
regarding a proposed FIRM.25
In BW-12, Congress reestablished and reauthorized a council cal ed the Technical Mapping
Advisory Council (TMAC).26 The TMAC is broadly authorized to review and recommend
improvements to how FEMA produces and disseminates flood hazard, flood risk, and flood map
information.27 In particular, the TMAC is authorized to recommend to FEMA “mapping standards
and guidelines for—(A) flood insurance rate maps [FIRMs]; and (B) data accuracy, data quality,
data currency, and data eligibility.”28 Currently, the TMAC estimates that the production of a new
or revised FIRM is designed to take three to five years under the Risk MAP program, but can
often take as long as six and a half years or longer.29 The TMAC has suggested that the ideal Risk
MAP project timeline is 25 months.30
Map Corrections
After a map is finalized and adopted by a community, it can stil be revised to correct for errors in
map accuracy. To correct these inaccuracies, FEMA al ows individuals and communities to
request letters amending or revising the flood map. In general, two primary circumstances may
result in changes to the flood map. First, the natural elevation of property may be incorrectly

22 See, for example, 42 U.S.C. §4101b(d)(1) and 42 U.S.C. §4104.
23 See, for example, 44 C.F.R. §66.1.
24 Primarily, see 42 U.S.C. §4104(c)-(g).
25 §100218(a) of P.L. 112-141, 126 Stat. 930, as codified at 42 U.S.C. §4104-1. For more on the Scientific Resolution
Panel, see the Panel’s website at http://www.floodsrp.org/.
26 Section 100215, T itle II of P.L. 112-141, 126 Stat. 924, as codified at 42 U.S.C. §4101a. Congress originally
authorized the creation of the T echnical Mapping Advisory Council (T MAC) in 1994 (see §576 of P.L. 103-325, 108
Stat. 2280). However, in that originating statute, the T MAC was required to terminate “ 5 years after the date on which
all members of the Council have been appointed.” BW -12 did not include a termination clause for T MAC, thus making
it permanent. BW-12 describes the conditions for membership, pay, and other matters relating to the operations and
structure of the T MAC.
27 For a list of duties, see 42 U.S.C. §4101a(c).
28 42 U.S.C. §4101a(c)(2).
29 For further details on the remapping process, see Sect ion 4.4.2 in T echnical Mapping Advisory Council, Annual
Report, 2015, December 2015, pp. 4-55, and the section on Process, in T echnical Mapping Advisory Council, National
Flood Mapping Program Review, June 2016, pp. 13-17, both at https://www.fema.gov/flood-maps/guidance-partners/
technical-mapping-advisory-council.
30 Ibid. See Figure 4-10.
Congressional Research Service

5

Introduction to the National Flood Insurance Program (NFIP)

accounted for on a FIRM, and that natural elevation is such that the property should not be
considered part of the SFHA. General y, in this circumstance, an individual or community may
request a Letter of Map Amendment (LOMA).31 Second, a community may feel that a physical
development in the community has resulted in a reduction of the flood risk for areas previously
mapped in the floodplain. General y, in this circumstance, the community may request a Letter of
Map Revision (LOMR).32 In either a LOMA or LOMR, the decision to correct a map must be
based on scientific information validating the inaccuracy of the current map. In most
circumstances, the cost of requesting the map correction is borne by the community or
individual.33
State and Local Land Use Controls
As authorized in law, FEMA has developed a set of minimum floodplain management standards
that are intended to
(1) constrict the development of land which is exposed to flood damage where appropriate,
(2) guide the development of proposed construction away from locations which are
threatened by flood hazards, (3) assist in reducing damage caused by floods, and (4)
otherwise improve the long-range land management and use of flood-prone areas.34
Communities are required to adopt these minimum floodplain management standards in order to
participate in the NFIP.35 FEMA has set forth the minimum standards it requires for participation
in the NFIP in federal regulations.36 Though the standards appear in federal regulations, the
standards only have the force of law because they are adopted and enforced by a state or local
government. Key conditions of the NFIP minimum standards include, among many other
conditions, that communities
 require permits for development in the SFHA;
 require elevation of the lowest floor of al new residential buildings in the SFHA
to or above the Base Flood Elevation (BFE);37
 restrict development in the regulatory floodway to prevent increasing the risk of
flooding; and
 require certain construction materials and methods that minimize future flood
damage.38

31 For more on LOMAs, see 44 C.F.R. Part 70, or FEMA’s website at https://www.fema.gov/glossary/letter-map-
amendment -loma.
32 For more on LOMRs, see 44 C.F.R. Part 72, or FEMA’s website at https://www.fema.gov/flood-maps/change-your-
flood-zone/loma-lomr-f.
33 For detailed information on the process of revising and amending NFIP maps, please see FEMA, Appeals, Revisions,
and Am endm ents to National Flood Insurance Pro gram Maps: A Guide for Com m unity Officials, December 2009, at
https://www.hsdl.org/?abstract&did=30227.
34 42 U.S.C. §4102(c).
35 42 U.S.C. §4022(a)(1).
36 See 44 C.F.R. Part 60, particularly 44 C.F.R. §60.3.
37 T he Base Flood Elevation (BFE) is the water-surface elevation of the base flood, which is the 1%-annual-chance
flood, commonly called the 100-year flood. T he probability is 1% that rising water will reach BFE height in any given
year. T he depth of the base flood is calculated by subtracting the ground elevation from the BFE.
38 For more on the NFIP minimum floodplain standards, see, for example, FEMA, NFIP Floodplain Management, at
https://www.fema.gov/floodplain-management -requirements.
Christopher P. Jones, William L. Coulbourne, and Jamie Marshall, et al., Evaluation of the National Flood Insurance
Congressional Research Service

6

link to page 25 link to page 23 Introduction to the National Flood Insurance Program (NFIP)

Legal enforcement of the floodplain management standards is the responsibility of the
participating NFIP community. However, FEMA, often in cooperation with state governments,
wil conduct community assistance visits (CAVs) to monitor how and if a community is
adequately enforcing its floodplain ordinances.39 Two previous reviews commissioned by FEMA
on community enforcement of minimum floodplain standards have estimated that the nationwide
rate of community compliance with the standards is 70% to 85%,40 and that between 58% and
70% of buildings are built in full compliance with the standards.41 A community that has been
found failing to enforce the floodplain management standards may be placed on probation and
ultimately suspended from the NFIP (as discussed later in this report).42 As these standards are
just minimum requirements, states and communities can elect to adopt higher standards as a
means of mitigating flood risk. In addition, FEMA operates a program, cal ed the Community
Rating System, to incentivize NFIP communities to adopt more rigorous floodplain management
standards (as discussed later in this report).43
Flood Mitigation Assistance Grants
To reduce comprehensive flood risk, FEMA also operates a Flood Mitigation Assistance (FMA)
Grant Program that is funded through revenue collected by the NFIP.44 The FMA Program45
awards grants for a number of purposes, including state and local mitigation planning; the
elevation, relocation, demolition, or flood proofing of structures; the acquisition of properties;

Program’s Building Standards: Prepared as part of the 2001-2006 Evaluation of the National Flood Insurance Program,
American Institutes of Research, October 2006, at https://www.fema.gov/sites/default/files/2020-07/
fema_nfip_eval_building_standards.pdf.
Association of State Floodplain Managers, A Guide for Higher Standards in Floodplain Management, March 2013, at
https://s3-us-west-2.amazonaws.com/asfpm-library/General/
Higher_Standards_Floodplain_Management_ASFPM_2013.pdf .
39 For more information on CAVs, see FEMA, Guidance for Conducting Community Assistance Contacts and
Com m unity Assistance Visits, F-776, April 2011, at https://s3-us-west-2.amazonaws.com/asfpm-library/Mentoring/
FEMA_2011_guidance_conducting_community.pdf .
40 A community was estimated to be compliant with the floodplain management standards if it
had no program deficiencies or violations or if it addressed them satisfactorily within two years
[following a community assistance visit]. As another way of gauging ov erall community
compliance, FEMA and state personnel were asked in interviews to give estimates of the proportion
of compliant communities in their ‘territories.’ T heir responses ranged from 0 percent compliant for
some areas to 100 percent for others, but averaged to 78 percent compliant, the median of the range
calculated from existing records.
See Jacquelyn L. Monday, Kristen Y. Grill, and Paul Esformes, et al., An Evaluation of Com pliance with the National
Flood Insurance Program Part A: Achieving Com m unity Com pliance, American Institutes of Research, Prepared as
part of the 2001-2006 Evaluation of the National Flood Insurance Program, November 2006, p. x, at
https://www.fema.gov/sites/default/files/2020-07/fema_nfip_eval_community_compliance_a.pdf.
41 Margaret L. Mathis and Suzanne Nicholson, An Evaluation of Compliance with the National Flood Insurance
Program Part B: Are Minim um Building Requirem ents Being Met?, Dewberry, Prepared as part of the 2001 -2006
Evaluation of the National Flood Insurance Program, October 2006, p. viii, at https://www.fema.gov/sites/default/files/
2020-07/fema_nfip_eval_community_compliance_b.pdf.
42 See the “ Nonparticipating Communities and Community Suspension” section of this report.
43 See the “ Community Rating System” section of this report.
44 42 U.S.C. §4104c.
45 In BW-12, Congress mandated that the grant assistance previously delivered by the Repetitive Flood Claims (RFC)
and the Severe Repetitive Loss (SLR) grant programs should be unified into a single program, Flood Mitigation
Assistance (FMA), by rescinding the authorization for the SLR program and the RFC program. See Sections
100225(b)-(c) of P.L. 112-141, respectively.
Congressional Research Service

7

link to page 13 link to page 28 Introduction to the National Flood Insurance Program (NFIP)

and other activities.46 FMA grants are only available to communities which participate in the
NFIP, to assist in efforts to reduce or eliminate flood damage to buildings and structures insurable
under the NFIP, particularly repetitive loss47 and severe repetitive loss48 properties.
The FMA Program has $160 mil ion available for FY2021.49 The funding is available until it is
expended, so in certain years the amount awarded may exceed the amount authorized by
Congress in an appropriation act for a specific fiscal year.50 A database of FMA grants that is
available from FEMA indicates that $1.53 bil ion in projects was approved between 1996 and
2019.51
Infrastructure Funding for Flood Mitigation
The Infrastructure Investment and Jobs Act52 appropriated $3.5 bil ion for the FMA program, with
$700 mil ion for each of FY2022 to FY2026. This represents a significant increase in the amount
of funding available for flood mitigation, and the first time that funding has been appropriated for
the FMA program.
Primary Flood Insurance Through the NFIP
Standard Flood Insurance Policies (SFIPs)
FEMA has considerable discretion under the law to craft the details of the flood insurance
policies it sel s through the NFIP.53 Currently, there are three policies that the NFIP uses to sel
primary flood insurance—the Dwel ing, the General Property, and the Residential Condominium
Building Association policy forms. Collectively, these Standard Flood Insurance Policies (SFIPs)
appear in regulations, and coverage qualifications are general y equivalent.54 Table 2 displays the
maximum available coverage limits for SFIPs by occupancy type. These coverage amounts are

46 For additional information on t he FMA Program, see 44 C.F.R. Part 78, and FEMA’s website at
https://www.fema.gov/grants/mitigation/floods.
47 42 U.S.C. §4121(a)(7) defines repetitive loss structure as
a structure covered by a contract for flood insurance that —
(A) has incurred flood-related damage on 2 occasions, in which the cost of repair, on the average,
equaled or exceeded 25 percent of the value of the structure at the time of each such flood event;
and
(B) at the time of the second incidence of flood-related damage, the contract for flood insurance
contains increased cost of compliance coverage.
48 Severe repetitive loss properties are those that have incurred four or more claim payments exceeding $5,000 each,
with a cumulative amount of such payments over $20,000; or at least two claims with a cumulative total exceeding the
value of the property. See 42 U.S.C. §4014(h) and 44 C.F.R. §79.2(h).
49 See FEMA, Notice of Funding Opportunity (NOFO) Fiscal Year 2021 Flood Mitiga tion Assistance, at
https://www.fema.gov/sites/default/files/documents/fema_nofo-fiscal-year-2021-flood-mitigation-assistance-grants.pdf.
50 For additional information on how the FMA program is financed, see the “ Appropriations and Offsetting Receipts”
section of this report.
51 T his figure represents the total amount of federal assistance, without subtracting the cost share, for the three flood
mitigation programs that existed during this time: SRL, RFC, and FMA. T o access the database, see FEMA’s website
at https://www.fema.gov/openfema-data-page/hazard-mitigation-assistance-projects-v2.
52 P.L. 117-58.
53 42 U.S.C. §4013(a).
54 See 44 C.F.R. Part 61, Appendix A. Copies of the policy forms are also available on FEMA’s website at
https://www.fema.gov/flood-insurance/find-form.
Congressional Research Service

8

link to page 7 link to page 7 Introduction to the National Flood Insurance Program (NFIP)

set by law.55 Policyholders are able to elect coverage for both their building property and separate
coverage for contents. Renters may obtain contents-only coverage.
Table 2. Maximum Available Coverage Limits for SFIPs by Occupancy Type

Occupancy Type
Nonresidential
Business, other
Policy Coverage Type
1-4 Family
Other Residential
Nonresidential
Combined
$250,000/$100,000
$500,000/$100,000
$500,000/$500,000
Building/Contents
Contents Only
$100,000
$100,000
$500,000
Source: FEMA, Flood Insurance Manual, 3. How to Write, revised October 2020, p. 3-3, at https://www.fema.gov/
sites/default/files/2020-09/fema_flood-insurance-manual-ful -edition_april-oct2020.pdf.
Because SFIP coverage limits are often less than the value of a structure or the value of the
property’s contents, policyholders can obtain excess flood insurance to cover losses beyond the
coverage limit. However, such excess coverage is not sold by the NFIP, and can only be
purchased through the private insurance market.
Within the SFIPs sold by the NFIP, there are numerous policy exclusions that are often not
understood by policyholders. For example, SFIPs do not provide coverage for alternative living
expenses (e.g., the cost of staying in a hotel while a house is being repaired) or business
interruption expenses, and SFIPs have limited coverage of basements or crawlspaces.56 In
addition, the SFIP does not cover damage caused by earth movement, including landslides.57
Mandatory Mortgage Purchase Requirement
In a community that participates or has participated in the NFIP, owners of properties in the
mapped SFHA58 are required to purchase flood insurance as a condition of receiving a federal y
backed mortgage. By law and regulation, federal agencies, federal y regulated lending
institutions, and government-sponsored enterprises must require these property owners to
purchase flood insurance as a condition of any mortgage that these entities make, guarantee, or
purchase.59 Examples of the types of lenders that are mandated to issue regulations requiring the
purchase of flood insurance related to mortgages include
 federal agency lenders, such as the Department of Veterans Affairs, or
 the government-sponsored enterprises (GSEs), Federal National Mortgage
Association (Fannie Mae) and Federal Home Loan Mortgage Corporation
(Freddie Mac), or

55 42 U.S.C. §4013(b).
56 For a basic guide to coverage under the SFIP, see FEMA, Summary of Coverage, at https://agents.floodsmart.gov/
sites/default/files/fema_NFIP -summary-of-coverage_brochure_09-2021.pdf.
57 T he exclusion for earth movement was particularly contentious in the aftermath of Hurricane Sandy. For a basic
discussion, see Lloyd Dixon, Noreen Clancy, and Bruce Bender, et al., Flood Insurance in New York City Following
Hurricane Sandy, RAND Corporation, October 2013, at http://www.rand.org/pubs/research_reports/RR328.html.
58 For additional information on the Special Flood Hazard Area, see the “ Risk Mapping, Assessment, and Planning
(Risk MAP) and Flood Insurance Rate Maps (FIRMs)” section of this report.
59 42 U.S.C. §4012a.
Congressional Research Service

9

Introduction to the National Flood Insurance Program (NFIP)

 federal y regulated lending institutions, such as banks covered by the Federal
Deposit Insurance Corporation (FDIC) or the Office of the Comptroller of the
Currency (OCC).60
Property owners fal ing under this mandate may purchase flood insurance through the NFIP, or
through a private company, so long as the private flood insurance provides “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.”61
The implementation of this requirement has proved chal enging, with the responsible federal
regulators (the Federal Reserve, Farm Credit Administration, Federal Deposit Insurance
Corporation, National Credit Union Administration, and Comptroller of the Currency) issuing
two separate Notices of Proposed Rulemaking (NPRM) addressing the issue in October 201362
and November 2016.63 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 partic ular
private policies would meet the standard has been seen as “at odds with” greater private
participation in the flood insurance marketplace.64
On February 12, 2019, the regulators announced a final rule65 implementing the BW-12
“requirement that regulated lending institutions accept private flood insurance policies.” The rule
took effect on July 1, 2019. Of particular note, the rule
 “al ows 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 does not apply directly to other federal agencies, nor to the GSEs, which would be
subject to separate rulemaking. On November 23, 2020, the Department of Housing and Urban
Development released a proposed rule on the acceptance of private flood insurance for Federal

60 42 U.S.C. §4012a(b)(1)-(3). For examples of regulations and policies implementing this provision, see 12 C.F.R.
Parts 12 and 339 for regulations for the OCC and FDIC, respectively, or Federal National Mortgage Association
(Fannie Mae), Servicing Guide, Part B-3-07: Flood Insurance Requirem ents, 2019, available at https://selling-
guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart -B7-Insurance/Chapter-B7-3-Property-and-
Flood-Insurance/1032999711/B7-3-07-Flood-Insurance-Coverage-Requirements-08-07-2019.htm.
61 42 U.S.C. §4012a(b). For additional information on private flood insurance, see CRS Insight IN10450, Private Flood
Insurance and the National Flood Insurance Program (NFIP) , by Baird Webel and Diane P. Horn; and CRS Report
R45242, Private Flood Insurance and the National Flood Insurance Program , by Diane P. Horn and Baird Webel.
62 Department of the Treasury, Federal Reserve System, Federal Deposit Insurance System, Farm Credit
Administration, National Credit Union Administration, “ Loans in Areas Having Special Flood Hazards,” 78(210)
Federal Register 65107-65142, October 30, 2013.
63 Department of the Treasury, Federal Reserve System, Federal Deposit Insurance System, Farm Credit
Administration, National Credit Union Administration, “Loans in Areas Having Special Flood Hazards—Private Flood
Insurance,” 81(215) Federal Register 78063-78080, November 7, 2016.
64 See, for example, the response on behalf of the National Association of Insurance Commissioners to the proposed
rulemaking on “Loans in Areas Having Special Flood Hazards—Private Flood Insurance,” January 6, 2017, at
https://www.naic.org/documents/government_relations_comment_letter_federal_banking_private_flood_insurance.pdf .
65 Department of the Treasury, Federal Reserve System, Federal Deposit Insurance System, Farm Credit
Administration, National Credit Union Administration, “Loans in Areas Having Special Flood Hazards,” 84(34)
Federal Register 4953-4975, February 20, 2019.
Congressional Research Service

10

Introduction to the National Flood Insurance Program (NFIP)

Housing Administration-insured mortgages.66 The proposed rule is similar, but not identical, to
that put into place by federal regulators in 2019. The HUD proposed rule is open for public
comment until January 22, 2021.
Not al mortgages in the SFHA are affected by this mandatory purchase requirement. For
example, a personal mortgage loan between two private parties (such as between family
members), or a mortgage issued by a private mortgage company that is not then sold on the
secondary market to a bank or entity like Fannie Mae, may not require flood insurance. Even if
they are not technical y required to mandate flood insurance by federal law, the issuing party may
stil require it as a means of financial y securing the property. While the exact percentage of total
mortgages requiring flood insurance is unknown, one study suggested at least 77% of al
mortgages in SFHAs in 2003 would be subject to the requirement.67
Despite the mandatory purchase requirement, not al covered mortgages carry the insurance as
dictated. There are no official statistics available from the federal mortgage regulators responsible
for implementation of the mandate and no recent reports on compliance with the mandatory
purchase requirement. A 2006 study of national compliance which was the MPR may be as low as
43% in some areas of the country (the Midwest), and as high as 88% in others (the West).68 In a
2013 analysis done following Hurricane Sandy, one study found that approximately 65% of
properties in New York City required to have insurance through their mortgage had such
insurance.69 A 2017 study of flood insurance in New York City by the same authors reassessed the
2013 data and suggested that the estimate in their earlier study may have slightly overstated the
actual take-up rate, which the 2017 study estimated at 61%. The later study found that
compliance with the mandatory purchase requirement by properties in the SFHA with mortgages
increased from 61% in 2012 to 73% in 2016. The later study also argued that findings for
properties without mortgages indicate the effectiveness of the mandatory purchase requirement,
as the 37% take-up rate for properties without mortgages in the SFHA was similar to take-up rates
outside the SFHA (37% for properties with mortgages and 32% for properties without
mortgages).70
The escrowing of insurance premiums may increase compliance with the mandatory purchase
requirement. Federal mortgage regulators have required the escrowing of flood insurance
premiums on certain mortgages in compliance with regulations issued after changes to the law

66 Department of Housing and Urban Development, “Acceptance of Private Flood Insurance for FHA-Insured
Mortgages,” 85 Federal Register 226, November 23, 2020.
67 T he 77% figure was estimated using the overall percentage of mortgages held by parties subject to the mortgage
requirement, and likely is subject to a degree of error. See Richard J. T obin and Corinne Calfee, The National Flood
Insurance Program’s Mandatory Purchase Requirement: Policies, Process, and Stakeholders, American Institutes for
Research, Prepared as part of the Evaluation of the National Flood Insurance Program, March 2005, p. 31, available at
https://www.fema.gov/sites/default/files/2020-07/fema_nfip_eval_mandatory_purchase_requirement.pdf.
68 Lloyd Dixon, Noreen Clancy, and Seth A. Seabury, et al., The National Flood Insurance Program’s Market
Penetration Rate: Estim ates and Policy Im plications, RAND Corporation, prepared as part of the Evaluation of the
National Flood Insurance Program, February 2006, p. 23, available at https://www.rand.org/content/dam/rand/pubs/
technical_reports/2006/RAND_T R300.pdf.
69 Lloyd Dixon, Noreen Clancy, Bruce Bender, et al., Flood Insurance in New York City Following Hurricane Sandy,
RAND Corporation, 2013, p. 15, available at http://www.rand.org/pubs/research_reports/RR328.html.
70 Lloyd Dixon, Noreen Clancy, and Benjamin M. Miller, et al., The Cost and Affordability of Flood Insurance in New
York City: Econom ic Im pacts of Rising Prem ium s and Policy Options for One - to Four-Fam ily Hom es, RAND
Corporation, March 2017, pp. 15-18, https://www.rand.org/pubs/research_reports/RR1776.html.
Congressional Research Service

11

Introduction to the National Flood Insurance Program (NFIP)

made in 1994.71 Expanding upon existing requirements, Section 100209 of BW-12,72 as
subsequently revised by Section 25 of HFIAA,73 has required that regulated lenders start
escrowing flood insurance for al mortgages, except if the lending institution is under a regulated
size or the loan is a subordinate to another loan. This broader implementation of the escrowing
provision began in January 2016, per law and regulations.74 This requirement may increase
compliance with the MPR, but no data on this are available.
Preferred Risk Policies (PRPs)
Flood insurance is optional for properties outside the SFHA regardless of whether they have a
federal y backed mortgage. However, as there is stil a risk of flooding outside the SFHA,
members of NFIP participating communities with property located in the B, C, or X Zones of a
FIRM may voluntarily purchase a lower-cost Preferred Risk Policy. Unlike with properties in the
SFHA, an individual may be denied a PRP if there is significant loss history for the property.75
FEMA encourages the purchase of PRPs both to reduce the financial flood risk of a broader group
of individuals, and to expand the policy base of the NFIP writ large, thus improving the fiscal
soundness of the NFIP portfolio. A PRP uses the same basic policy forms as properties within the
SFHA, but receives discounted rates in accordance with its lower risk profile. The PRP is being
retired under Risk Rating 2.0.76
Increased Cost of Compliance (ICC) Coverage
The NFIP requires most SFIP and PRP policyholders77 to purchase what is in effect a separate
insurance policy to offset the expense of complying with more rigorous building code standards
when local ordinances require them to do so. This increased cost of compliance coverage is
authorized in law, and rates for the coverage, as wel as how much can be paid out for claims, are
set by FEMA.78 Congress has capped the amount that can be paid for ICC coverage at $75.79 The

71 P.L. 103-325, §523; 108 Stat. 2258.
72 P.L. 112-141, §100209; 126 Stat. 920.
73 P.L. 113-89, §25 128 Stat. 1030.
74 See 42 U.S.C. §4012a(d)(1), and the final rule of Office of the Comptroller of the Currency, T reasury; Board of
Governors of the Federal Reserve System; Federal Deposit Insurance Corporation; Farm Credit Administration;
National Credit Union Administration, “ Loans in Areas Having Special Flood Hazards,” 80 Federal Register 43216,
July 21, 2015. For a full explanation of how escrowing had previously worked prior to BW -12, and for how it is being
required following BW-12 and HFIAA, see the notice of proposed rulemaking from the federal agency regulators at
Office of the Comptroller of the Currency, T reasury; Board of Governors of the Federal Reserve System; Federal
Deposit Insurance Corporation; Farm Credit Administration; National Credit Union Administration, “ Loans in Areas
Having Special Flood Hazards,” 79 Federal Register 64518, October 29, 2014.
75 A Preferred Risk Policy is a Standard Flood Insurance Policy that offers low-cost coverage to owners and tenants of
eligible buildings located in moderate- and low-risk flood zones in NFIP communities. For additional information on
PRPs and restrictions, see FEMA, Flood Insurance Manual, 3. How to Write, pp. 3-34 to 3-40, revised April 2021, at
https://www.fema.gov/sites/default/files/documents/fema_fim-3-how-to-write_apr2021.pdf.
76 When a PRP policy is renewed under Risk Rating 2.0, its premium will begin increasing until it reaches the full risk -
based rate. See National Flood Services, Risk Rating 2.0: What Is Changing, https://nationalfloodservices.com/wp-
content/uploads/2021/06/Risk-Rating-2.0-What-is-Changing.pdf.
77 For example, ICC coverage is not required on condominium units and content -only policies.
78 42 U.S.C. §4011(b).
79 Ibid.
Congressional Research Service

12

Introduction to the National Flood Insurance Program (NFIP)

ICC policy has a separate rate premium structure, and provides an amount up to $30,000 in
payments for certain eligible expenses.80
For example, when a building is determined by a community to be substantial y damaged81
following a flood, floodplain management standards adopted by local communities can require
the building to be rebuilt to current floodplain management requirements, even if the property
previously did not need to do so. For instance, the new compliance standard may require the
demolition and elevation of the rebuilt building to above the BFE. An ICC claim may then be
submitted by the policyholder to offset the cost of complying with the elevation standard. FEMA
also makes ICC coverage available if a building has been declared a repetitive loss by a
community’s floodplain management regulations.82 However, not al participating NFIP
communities have or enforce a “repetitive loss provision” that records, declares, and mandates
improvements to properties that have experienced repetitive loss. Thus, certain structures that
have experienced repetitive loss may not be eligible for ICC payments.83
FEMA has not implemented ICC coverage for two conditions that they are authorized to do so by
law. These two conditions are for properties that have sustained flood damage on multiple
occasions, if the Administrator determines that it is cost-effective and in the best interests of the
NFIP, and for properties for which an offer of mitigation assistance is made under various federal
assistance programs.84 FEMA’s decision not to implement these provisions has provoked
criticism from some stakeholders of the NFIP.85
Servicing of Policies and Claims Management
While FEMA provides the overarching management and oversight of the NFIP, the bulk of the
day-to-day operation of the NFIP, including the marketing, sale, writing, and claims management
of policies, is handled by private companies. This arrangement between the NFIP and private
industry is authorized by statute and guided by regulation.86 There are two different arrangements
that FEMA has established with private industry. The first is the Direct Servicing Agent, or DSA,
which operates as a private contractor on behalf of FEMA for individuals seeking to purchase
flood insurance policies directly from the NFIP.87 The second arrangement is cal ed the Write-
Your-Own (WYO) Program, where private insurance companies are paid to directly write and
service the policies themselves. With either the DSA or WYO Program, the NFIP retains the

80 For example, for ICC premiums, see FEMA, Flood Insurance Manual, Appendix J: Rate Tables, p. J-19, revised
October 2020, at https://www.fema.gov/sites/default/files/2020-09/fema_flood-insurance-manual-full-edition_april-
oct2020.pdf.
81 44 C.F.R. §59.1 defines “substantial damage” as damage of any origin sustained by a structure whereby the cost of
restoring the structure to its before damaged condition would equal or exceed 50% of the market value of the structure
before the damage occurred.
82 42 U.S.C. §4011(b)(1).
83 For additional information on repetitive loss and repetitive loss provisions, see FEMA, Increased Cost of Compliance
(ICC) Coverage, at https://www.fema.gov/floodplain-management/financial-help/increased-cost -compliance.
84 See 42 U.S.C. §4011(b)(3) and (4).
85 See, for example, Association of State Floodplain Managers (ASFPM), A Vision for Implementing ICC as it Exists in
Law Today, February 29, 2016, at https://www.floods.org/whats-new/in-case-you-missed-it-asfpms-vision-for-
implementing-icc-as-it-exists-in-law-today/.
86 See primarily 42 U.S.C. §4081 and §4018, and 44 C.F.R. Part 62.
87 T he current Direct Servicing Agent is a company called National Flood Services, who were awarded the contract in
October 2020. See https://nationalfloodservices.com/press/nfs-awarded-nfip-direct -service-provider-contract/.
Congressional Research Service

13

link to page 19 Introduction to the National Flood Insurance Program (NFIP)

actual financial risk of paying claims for the policy (i.e., underwrites the policy), and the policy
terms and premiums are the same.
Currently, approximately 12.1% of the total NFIP policy portfolio is managed through the DSA,
and 87.9% of NFIP policies are sold by the 57 companies participating in the WYO Program.88
Over the years, the balance between the number of policies serviced by the WYO Program or the
DSA has evolved, with the WYOs covering approximately 50% of policies in 1986, and
approximately 97% of policies in 2008.89 Because most purchasers of the NFIP policies never
interface directly with a FEMA representative, and only deal with a WYO company or the DSA,
they may not be aware that they are actual y purchasing insurance from FEMA.
Companies participating in the WYO Program are compensated through a variety of methods, as
summarized in Table 3. The Government Accountability Office (GAO) and Department of
Homeland Security, Office of the Inspector General (DHS IG) have produced a number of reports
investigating how much the WYOs were compensated for the services they provided in support of
the NFIP.90 In BW-12, Congress required FEMA to develop and issue a rulemaking on a
“methodology for determining the appropriate amounts that property and casualty insurance
companies participating in the Write Your Own program should be reimbursed for sel ing,
writing, and servicing flood insurance policies and adjusting flood insurance claims on behalf of
the National Flood Insurance Program.”91 This rulemaking was required within a year of
enactment of BW-12.92 FEMA published an Advanced Notice of Proposed Rulemaking to revise
the compensation structure of the WYOs on July 8, 2019.93 GAO reported that FEMA officials
said that they would complete an annual analysis of WYO data by the end of FY2020 and that
they were reviewing comments received in response to the July 2019 notice.94

88 Email correspondence from FEMA Congressional Affairs staff, January 5, 2020. A list of companies participating in
the WYO Program is available at https://nfipservices.floodsmart.gov/wyo-program-list.
89 For additional background on the estimates and history of the WYO Program, see, respectively, U.S. Government
Accountability Office, Private Com panies’ Participation in the Write Your Own Program , RCED-87-108, May 29,
1987, at http://www.gao.gov/products/RCED-87-108, and U.S. Government Accountability Office, Opportunities Exist
to Im prove Oversight of the WYO Program , GAO-09-455, August 2009, at http://www.gao.gov/products/GAO-09-455.
90 For example, see U.S. Government Accountability Office, Opportunities Exist to Improve Oversight of the WYO
Program , GAO-09-455, August 2009, at http://www.gao.gov/products/GAO-09-455 and DHS Office of Inspector
General, FEMA Does Not Provide Adequate Oversight of Its National Flood Insurance Write Your Own Program ,
OIG-16-47, March 8, 2016, at https://www.oig.dhs.gov/assets/Mgmt/2016/OIG-16-47-Mar16.pdf.
91 P.L. 112-141, §100224; 126 Stat. 936.
92 BW-12 required the rulemaking to be completed by July 6, 2013.
93 Federal Emergency Management Agency, “National Flood Insurance Program (NFIP); Revisions to Methodology for
Payments to Write Your Own (WYO) Companies,” 84(130) Federal Register 32,371-32,379, July 8, 2019.
94 U.S. Government Accountability Office, Priority Open Recommendations: Department of Homeland Security, GAO-
20-355PR, April 23, 2020, p. 9, https://www.gao.gov/assets/710/706532.pdf.
Congressional Research Service

14

Introduction to the National Flood Insurance Program (NFIP)

Table 3. Types of Compensation for WYO Companies
Compensation Type
Description
Operating and Administrative Expenses
Reimbursement of marketing, operating, and administrative
expenses.
Commission Al owance
Al owance to meet commissions or salaries of insurance
agents.
Growth Bonus
Increase in compensation dependent on the extent to which
the Company meets the NFIP marketing goals.
Al ocated Loss Adjustment Expenses (ALAE)
Standard amount of compensation for each individual claim.
Unal ocated Loss Adjustment Expenses (ULAE)
General overhead (indirect expenses) for settling losses.
Special Al ocated Loss Adjustment Expenses
Direct expenses that are above what is covered by ALAE.
(SALAE)
Source: Table 1 of DHS Office of Inspector General, FEMA Does Not Provide Adequate Oversight of Its National
Flood Insurance Write Your Own Program, OIG-16-47, March 8, 2016, p. 3, at https://www.oig.dhs.gov/assets/Mgmt/
2016/OIG-16-47-Mar16.pdf. This replicated table is based on the OIG’s analysis of the subsidy arrangement.
Following Hurricane Sandy, there were concerns raised regarding the possible systematic
underpayment of claims for flood losses through the NFIP.95 As a result of these issues, FEMA
carried out a process by which Hurricane Sandy survivors could resubmit their NFIP claims to be
reevaluated by FEMA. FEMA reviewed the resubmitted claims and provided additional claim
payments to those deemed warranted in the review, and concluded the Sandy Claims Review
Process on March 1, 2018.96 As of January 29, 2018, approximately 85% of policyholders who
requested a review had received additional payments, resulting in approximately $258.6 mil ion
in additional claims payments. The remaining 15% of reviewed files received no additional
payment.97 In addition, FEMA settled and litigated lawsuits initiated by claimants following
Hurricane Sandy, with 1,631 of the 1,633 court cases settled, resulting in approximately $164
mil ion in settlement payments.98 The Sandy claims review process was concluded on March 1,
2018.
Pricing and Premium Rate Structure
Except for certain subsidies, flood insurance rates in the NFIP are directed to be “based on
consideration of the risk involved and accepted actuarial principles,”99 meaning that the rate is
reflective to the true flood risk to the property. Essential y, FEMA uses several basic
characteristics to classify properties based on flood risks. Structures are evaluated by their
specific risk zone on a FIRM, the elevation of the structure relative to the Base Flood Elevation

95 For an analysis of the claims issues following Hurricane Sandy, see U.S. Congress, Senate Committee on Banking,
Housing, and Urban Affairs, Assessing and Im proving Flood Insurance Manag ement and Accountability in the Wake of
Superstorm Sandy, prepared by Majority Staff Report, 114 th Cong., 1st sess., June 22, 2015, at
https://www.banking.senate.gov/download/majority-staff-shelby-flood-insurance-report-2015.
96 FEMA published a series of fact sheets about the Sandy claims review and legal settlements, which since August
2016 have been called Sandy Claims Review Decision Fact Sheets.
97 Department of Homeland Security Office of Inspector General, Unsupported Payments Made to Policyholders Who
Participated in the Hurricane Sandy Claim s Review Process, OIG-18-38, Washington , DC, January 24, 2018,
https://www.oig.dhs.gov/sites/default/files/assets/2018-01/OIG-18-38-Jan18.pdf.
98 Ibid.
99 42 U.S.C. §4014(a)(1).
Congressional Research Service

15

link to page 21 Introduction to the National Flood Insurance Program (NFIP)

(BFE) in each risk zone, and occupancy type (e.g., single family, other residential, nonresidential,
and mobile/manufactured homes), along with other specific determinants of risk. In addition, the
premium structure includes estimates for the expenses of the NFIP, including servic ing of
policies. A detailed discussion of the premium rate structure of the NFIP, and how or why it is and
is not actuarial y sound, is beyond the scope of this report. However, additional resources exist to
assist Congress with this issue.100
Pre-FIRM Subsidy
While most premium rates in the NFIP are intended to represent the full flood risk of a given
structure, Congress has directed FEMA not to charge actuarial rates for properties that were
constructed or substantial y improved before December 31, 1974, or before the date upon which
FEMA has published the first Flood Insurance Rate Map for the community, whichever was
later.101 Therefore, by statute, premium rates charged on structures built before they were first
mapped into a flood zone that have not been substantial y improved, known as pre-FIRM
structures, are al owed to have lower premiums than what would be expected to cover predicted
claims. The availability of this pre-FIRM subsidy was intended to al ow preexisting floodplain
properties to contribute in some measure to prefunding their recovery from a flood disaster
instead of relying solely on federal disaster assistance. In essence, the flood insurance could
distribute some of the financial burden among those protected by flood insurance and the public.
As of September 2018, approximately 13% of NFIP policies received a pre-FIRM subsidy.102
Historical y, the total number of pre-FIRM policies is relatively stable, but the percentage of those
policies by comparison to the total policy base has decreased.103 The pricing subsidy for pre-
FIRM policies is progressively being phased out of the NFIP, as was initial y required under
Section 100205 of BW-12, as revised by Sections 3 and 5 of HFIAA.104 Under current law, al
premiums for pre-FIRM properties wil eventual y reach actuarial y sound rates (i.e., the rate
equivalent structures pay without the subsidy, reflecting true flood risk), but at a different pace of
phaseout depending on the property type. Table 4 provides an adaptation of a table from GAO

100 See, for example, CRS Report R45999, National Flood Insurance Program: The Current Rating Structure and Risk
Rating 2.0, by Diane P. Horn; Office of Inspector General, Department of Homeland Security, FEMA Is Not Effectively
Adm inistering a Program to Reduce or Elim inate Dam age to Severe Repetitive Loss Properties, OIG-20-68,
Washington, DC, September 8, 2020, pp. 1 -34, https://www.oig.dhs.gov/sites/default/files/assets/2020-09/OIG-20-68-
Sep20.pdf; several reports from GAO, including U.S. Government Accountability Office, National Flood Insurance
Program : Fiscal Exposure Persists Despite Property Acquisitions, GAO-20-508, June 2020, pp. 1-50,
https://www.gao.gov/assets/710/707821.pdf; U.S. Government Accountability Office, High-Risk Series: Substantial
Efforts Needed to Achieve Greater Progress on High -Risk Areas, GAO-19+157SP, March 2019, pp. 111-114 and 272-
274, https://www.gao.gov/assets/700/697245.pdf; U.S. Government Accountability Office, Flood Insurance:
Com prehensive Reform Could Im prove Solvency and Enhance Resilience , GAO-17-245, April 2017, pp. 1-58,
https://www.gao.gov/assets/690/684354.pdf; U.S. Government Accountability Office, Continued Progress Needed to
Fully Address Prior Recom m endations on Rate-Setting Methods, GAO-16-59, March 2016, at http://www.gao.gov/
assets/680/675855.pdf/; National Academies of Sciences, Affordability of National Flood Insurance Program
Prem ium s: Part 1, 2015, Chapter 3, National Flood Insurance Pricing, Policies, and Premiums, http://www.nap.edu/
catalog/21709/affordability-of-national-flood-insurance-program-premiums-report-1; Congressional Budget Office,
The National Flood Insurance Program : Factors Affecting Actuarial Soundness, November 2009,
https://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/106xx/doc10620/11-04-floodinsurance.pdf.
101 42 U.S.C. §4015(c).
102 Email correspondence from FEMA Congressional Affairs staff, June 13, 2019. FEMA has not collected updated
information for rating categories since producing the September 2018 numbers.
103 For an historical prospective on the percentages of subsidized policies in the NFIP, see Figure 1 of U.S. Government
Accountability Office, Flood Insurance: More Inform ation Needed on Subsidized Properties, GAO-13-607, July 2013,
p. 7, at http://www.gao.gov/assets/660/655734.pdf.
104 P.L. 112-141, 126 Stat. 917; and P.L. 113-89, 128 Stat. 1021-1022; respectively.
Congressional Research Service

16

link to page 21 link to page 21 link to page 21 link to page 21 link to page 21 link to page 21 link to page 22 link to page 22 link to page 22 link to page 22 link to page 22 link to page 22 Introduction to the National Flood Insurance Program (NFIP)

regarding the multifaceted phaseout of the pre-FIRM subsidy following BW-12, as revised by
HFIAA. In summary, HFIAA slowed the rate of phaseout of the pre-FIRM subsidy for most
primary residences, but retained the pace of the phaseout of the subsidy from BW-12 for business
properties and secondary homes. In addition, HFIAA created a minimum and maximum increase
in the amount for the phaseout of pre-FIRM subsidies for al primary residences of 5%-15%
annual y. Unless otherwise noted, the percentage increases are based on the current premium
(e.g., a 15% annual increase from the prior year premium), rather than the percentage difference
between the current premium and the actuarial rate (i.e., a rate increase of 25% does not mean the
pre-FIRM subsidy is eliminated in four years).
Table 4. Phaseout of NFIP Pre-FIRM Premium Subsidy Following Legislation

Annual Rate of Phaseout
Property Type or Circumstance
After BW-12
After HFIAA (current)
Primary residence . .

and al other properties not included in
Five-year phaseout starting
5-15%b
other categories
after property is identified on
new FIRMa
purchased after July 6, 2012
Eliminated immediately
Reinstated, 5-15%b
not insured by NFIP as of July 6, 2012
Eliminated immediately
Reinstated, 5-15%b
Nonprimary residence
25%
25%
Nonresidential properties other than business
25%
5-15%b
propertiesc
Business properties
25%
25%
Property with severe repetitive lossd
25%
25%
Property with substantial cumulative damagee
25%
25%
Property with substantial damage or
25%
25%
improvement after July 6, 2012f
Owner let NFIP policy lapse
Eliminated immediatelyg
Eliminated immediatelyh
Prospective insured who refuses to accept
Eliminated immediately
Eliminated immediately
offers for mitigation assistancei
Source: CRS analysis of P.L. 112-141 and P.L. 113-89. Adapted from Figure 3 from U.S. Government
Accountability Office, Forgone Premiums Cannot Be Measured and FEMA Should Validate and Monitor Data System
Changes, GAO-15-111, December 2014, p. 10, at http://www.gao.gov/assets/670/667413.pdf.
Notes:
a. Al properties with subsidies not being phased out at higher rates or already eliminated were required to
begin paying actuarial rates fol owing a five-year period, phased in at 20% a year, after a revised or updated
flood insurance rate map (FIRM) was issued for the area containing the property. Thus, this p rovision would
have gradual y eliminated both pre-FIRM and grandfathering subsidies for al properties before being struck
by the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA; P.L. 113-89). See Section 100207 of
P.L. 112-141, 126 Stat. 919.
b. HFIAA permits individual property increases of up to 18%, but limits the rate class increases to 15% per
year. See 42 U.S.C. §4015(e).
c. Prior to BW-12, FEMA did not distinguish business properties from other nonresidential properties such as
houses of worship, nonprofits, and schools. In order to implement the requirement that business properties
should have their rates phased out at 25% annual y, FEMA needed to increase al nonresidential properties
at that rate. However, with greater distinguishing between property types possible with new data, and
phaseout rate increases being capped by HFIAA, nonresidential properties other than business properties
Congressional Research Service

17

link to page 7 Introduction to the National Flood Insurance Program (NFIP)

are now having their subsidies phased out at 5%-15% instead of 25%. For more discussion on this issue, see
U.S. Government Accountability Office, Status of FEMA’s Implementation of the Biggert-Waters Act, as
Amended, GAO-15-178, February 2015, p. 22, at http://www.gao.gov/products/GAO-15-178, and FEMA,
April 1, 2019 and January 1, 2020 Program Changes, WYO Program Bul etin W-15046, Attachment A, at
https://nfipservices.floodsmart.gov/sites/d efault/files/w-18021a.pdf.
d. Severe repetitive loss properties are those that have incurred four or more claim payments exceeding
$5,000 each, with a cumulative amount of such payments over $20,000; or at least two claims with a
cumulative total exceeding the value of the property. See 42 U.S.C. §4014(h) and 44 C.F.R. §79.2(h).
e. Any property that has incurred flood-related damage in which the cumulative amounts of payments under
the NFIP equaled or exceeded the fair market value of such property. See 42 U.S.C. §4014(a)(2)(C).
f.
Any property that has experienced or sustained substantial damage exceeding 50% of the fair market value
or substantial improvement exceeding 50% of the fair market value. See 42 U.S.C. §4014(a)(2)(E). Section
100205(a)(1)(A) of BW-12 (P.L. 112-141, 126 Stat. 917) original y set the substantial improvement amount
at 30%, but HFIAA raised the percentage to 50% of fair market value.
g. As required by Section 100205(a)(1)(B) of BW-12 (P.L. 112-141, 126 Stat. 917), only for NFIP policies that
lapsed in coverage as a result of the deliberate choice of the policyholder. If a policy lapses for other
reasons, rate increases of 25% may have applied if the policy qualifies under one of the other property
categories.
h. HFIAA revised the condition for policy lapse to be for NFIP al policies that lapsed in coverage unless the
decision of the policyholder to permit a lapse in coverage was as a result of the property covered by the
policy no longer being required to retain such coverage. For any policy that lapses but is not automatical y
charged ful -risk rates, rate increases of 25% or 5% to 15% may apply if the policy qualifies under one of the
other categories stated above. See 42 U.S.C. §4014(g)(1).
i.
Any prospective insured who refuses to accept any offer for mitigation assistance by FEMA (including an
offer to relocate), including an offer of mitigation assistance fol owing a Stafford Act major disaster; or in
connection with a repetitive loss property or a severe repetitive loss property. See 42 U.S.C. §4014(g)(2).
Newly Mapped Subsidy
Congress introduced a new form of subsidy in HFIAA, for ow ners of properties newly mapped
into a SFHA.105 The newly mapped procedure applies to properties previously in zones B, C, X,
D, AR, or A99 (see Table 1), which are newly mapped into a SFHA on or after April 1, 2015, if
the applicant obtains coverage that is effective within 12 months of the map revision date. The
newly mapped procedure does not apply to properties mapped into a SFHA by the initial FIRM
for a community entering the NFIP, and certain properties may be excluded based on their loss
history.106 The rate for eligible newly mapped properties is equal to the PRP rate, but with a
higher Federal Policy Fee,107 for the first 12 months following the map revision. After the first
year, the newly mapped rate wil begin its transition to a full-risk rate, with annual increases to
newly mapped policy premiums calculated using a multiplier that varies by the year of the map
change.108 Annual increases are restricted to no more than 18% per year. As of September 2018,
about 4% of NFIP policies received a newly mapped subsidy.109

105 P.L. 113-89, §6; 128 Stat.1028, as codified at 42 U.S.C. §4015(i).
106 For properties which are excluded from, or ineligible for, the newly mapped subsidy, see FEMA, Flood Insurance
Manual, 3. How to Write, revised October 2020, pp. 3-40 to 3-48, https://www.fema.gov/sites/default/files/2020-09/
fema_flood-insurance-manual-full-edition_april-oct2020.pdf.
107 T he FRP for a newly mapped property is currently $50, where the FPF for PRP is $25. See FEMA, Flood Insurance
Manual, Appendix J: Rate Tables, revised October 2020, p. J-19, at https://www.fema.gov/sites/default/files/2020-09/
fema_flood-insurance-manual-full-edition_april-oct2020.pdf.
108 FEMA, Attachment A: April 1, 2019 and January 1, 2020 Program Changes: A Summary, at
https://nfipservices.floodsmart.gov/sites/default/files/w-18021a.pdf.
109 Email correspondence from FEMA Congressional Affairs staff, June 13, 2019.
Congressional Research Service

18

Introduction to the National Flood Insurance Program (NFIP)

Grandfathering Cross-Subsidy
Using the authority to set rate classes for the NFIP and to offer lower than actuarial premiums,110
FEMA al ows property owners to maintain their old flood insurance rate class if their property is
remapped into a new flood rate class. This practice is colloquial y referred to as “grandfathering,”
“administrative grandfathering,” or the “grandfather rule” and is separate and distinct from the
pre-FIRM subsidy.111 To understand the grandfather rule, consider a hypothetical property X that
is currently mapped into one flood zone (e.g., Zone AE), and is built to the proper building code
and standards. If property X then is remapped to a new flood zone (e.g., Zone VE) and has
maintained continuous insurance coverage under the NFIP, the owner of property X can pay the
flood insurance rate and premium based on the prior mapped zone (i.e., pay the AE rate instead of
the higher VE rate). A policyholder with a property may also be grandfathered if the elevation of
a base flood is changed in a map, but the property itself does not change flood zones.112
Congress eliminated the practice of offering grandfathering to policyholders after new maps were
issued in BW-12, but then subsequently reinstated the practice in HFIAA.113 As of September
2018, about 9% of NFIP policies were grandfathered.114
FEMA does not consider the practice of grandfathering to be a subsidy for the NFIP, per se,
because the discount provided to an individual policyholder is cross-subsidized by other
policyholders in the NFIP. Thus, while grandfathering does intentional y al ow grandfathered
policyholders to pay premiums that are less than their known actuarial rate, the discount is offset
by others in the same rate class as the grandfathered policyholder. FEMA tries to recoup lost
revenue by charging higher rates for other policies in the SFHA. It is not clear, however, whether
the NFIP is increasing other SFHA policy premiums by an amount equal to the discount from
other NFIP risk-based rates that are being paid by the grandfathered properties.115
Community Rating System
Through a program cal ed the Community Rating System (CRS), FEMA encourages communities
to improve upon the minimum floodplain management standards that are required to participate
in the NFIP. The CRS program, as authorized by law, is intended to incentivize the reduction of
flood and erosion risk, as wel as the adoption of more effective measures to protect natural and
beneficial floodplain functions.116 FEMA awards points that increase a community’s “class”
rating in the CRS on a scale of 1 to 10, with 1 being the highest ranking. Points are awarded for
an array of improvements for how the community informs its public on flood risk; maps and

110 42 U.S.C. §4013(a).
111 For a full description, see FEMA, NFIP Grandfathering Rules for Agents, March 2016, at https://www.fema.gov/
media-library-data/1488482596393-dcc52e6c120c9327dcd75f1c08e802e4/GrandfatheringForAgents_03_2016.pdf.
112 For a description of the types of grandfathering, see National Academies of Sciences, Affordability of National
Flood Insurance Program Prem ium s: Part 1 , 2015, p. 43, at http://www.nap.edu/catalog/21709/affordability-of-
national-flood-insurance-program-premiums-report-1.
113 P.L. 112-141, §100207 amended the law to require that when a property has a revised or updated flood rate class
with a new flood map, the “risk premium rate charged for flood insurance on such property adjusted to accurately
reflect the current risk of flood to such property” (126 Stat. 919), thus eliminating the ability to grandfather. T his
provision was struck by P.L. 113-89, 4; 128 Stat. 1022.
114 Email correspondence from FEMA Congressional Affairs staff, June 13, 2019.
115 National Academies of Sciences, Affordability of National Flood Insurance Program Premiums: Part 1 , 2015, p.
43, at http://www.nap.edu/catalog/21709/affordability-of-national-flood-insurance-program-premiums-report-1.
116 42 U.S.C. §4022(b)(1).
Congressional Research Service

19

Introduction to the National Flood Insurance Program (NFIP)

regulates its floodplain; reduces possible flood damage; and provides immediate warnings and
responds to flooding incidents.117 Starting at Class 9, policyholders in the SFHA within a CRS
community receive a 5% discount on their SFIP premiums, with increasing discounts of 5% per
class until reaching Class 1, and at that level, policyholders in the SFHA can receive a 45%
discount on their SFIP premiums. These discounts are not extended to PRPs.
In order to participate in the CRS program, a community must apply to FEMA and document its
creditable improvements through site visits and assessments. According to FEMA, only 7% of
eligible NFIP communities participate in the CRS program. However, these communities have a
large number of flood policies, so more than 70% of al flood policies are written in CRS-
participating NFIP communities.118 One can determine if and how highly rated a community is in
the CRS program through the most recent Flood Insurance Manual.119
The CRS program provides an average 13.3% discount on SFIP premiums across the NFIP.120
The CRS discount is cross-subsidized into the NFIP program, such that the discount for one
community ends up being offset by increased premium rates in al communities across the NFIP.
Therefore, the average 13.3% discount for CRS communities is cross-subsidized and shared
across NFIP communities through a cost (or load) increase of 15.3% to overal premiums.121 Thus
in some circumstances, the discount provided to communities participating in the CRS program
may be less than the expense of the overal CRS program.
Affordability Study and Framework
Congress has expressed concern related to the perceived affordability of flood insurance
premiums. In BW-12, Congress required FEMA to commission a study with the National
Academy of Sciences (NAS) regarding participation in the NFIP and the affordability of
premiums. The Affordability Study was not finished by its original deadline (270 days following
enactment of BW-12). Congress amended the authorization for the Study while also extending the
deadline in HFIAA.122 The NAS Affordability Study report was published in two parts.123 In
HFIAA, Congress also required FEMA to develop a Draft Affordability Framework “that
proposes to address, via programmatic and regulatory changes, the issues of affordability of flood
insurance sold under the National Flood Insurance Program, including issues identified in the

117 For a full listing of possible creditable activities in the Community Rating System (CRS), see FEMA, NFIP
Community Rating Coordinator’s Manual 2017, at https://www.fema.gov/sites/default/files/documents/
fema_community-rating-system_coordinators-manual_2017.pdf.
118 See FEMA, Community Rating System Fact Sheet 2021, at https://www.fema.gov/fact-sheet/community-rating-
system.
119 For example, see FEMA, Flood Insurance Manual, Appendix F: Community Rating System Section, revised October
2020, at https://www.fema.gov/sites/default/files/2020-09/fema_flood-insurance-manual-full-edition_april-
oct2020.pdf.
120 Email correspondence from FEMA Congressional Affairs staff, October 22, 2020.
121 Ibid. Note that Preferred Risk Policies do not receive CRS discounts and therefore their premiums do not contain a
load to offset CRS discounts. Discounted policies such as Pre-FIRM and Newly Mapped also do not contain a load to
offset CRS discounts; the CRS discounts simply further discount their premiums.
122 See P.L. 112-141, §100236; 126 Stat. 957; as amended by P.L. 113-89, §16; 128 Stat. 1026.
123 See National Research Council of the National Academies, Affordability of National Flood Insurance Program
Prem ium s: Report 1, 2015, at http://www.nap.edu/catalog/21709/affordability-of-national-flood-insurance-program-
premiums-report -1; and National Research Council of the National Academies, Affordability of National Flood
Insurance Program Prem ium s: Report 2, 2016, at http://www.nap.edu/catalog/21848/affordability-of-national-flood-
insurance-program-premiums-report-2.
Congressional Research Service

20

link to page 21 Introduction to the National Flood Insurance Program (NFIP)

affordability study.”124 Due 18 months following the submission of the Affordability Study, the
deadline for the Framework, based on FEMA’s stated date of submittal of the Affordability Study,
was September 10, 2017.125 FEMA published their Affordability Framework on April 17, 2018.126
FEMA does not currently have the authority to implement an affordability program, nor does
NFIP’s current rate structure provide the funding required to support an affordability program. If
an affordability program were to be funded from NFIP funds, this would require either raising
flood insurance rates for NFIP policyholders or diverting resources from another existing use.
Alternatively, an affordability program could be funded fully or partial y by congressional
appropriation.
Risk Rating 2.0
FEMA is in the process of introducing a new rating system known as Risk Rating 2.0,127 which
represents the biggest change to the way the NFIP calculates flood insurance premiums since its
inception.128 The new rates went into effect on October 1, 2021, for new NFIP policies and wil
go into effect on April 1, 2022, for existing policyholders.129 Under the change, premiums for
individual properties wil be tied to their actual flood risk and flood zones wil no longer be used
in calculating a property’s flood insurance premium, in contrast to the current rating system in
which properties with the same NFIP flood risk are charged the same rates. Instead, the premium
wil be calculated based on the specific features of an individual property. Risk Rating 2.0
incorporates a broader range of flood frequencies and sources than the current rating system,
which only considers the potential for coastal storm surge and fluvial (river) flooding. However,
flood zones wil stil be used for floodplain management purposes, and the boundary of the
Special Flood Hazard Area wil stil be required for the mandatory purchase requirement. Risk
Rating 2.0 wil continue the overal policy of phasing out NFIP subsidies, but wil not be able to
increase rates annual y beyond the caps on annual premium increases which are set in statute130
(see Table 4).
Nonparticipating Communities and Community
Suspension
FEMA enforces two regulatory conditions—probation and suspension—for removing a
participating community from the NFIP. Whether or not a particular community has either been
placed on probation or suspended can be found using the NFIP’s Community Status Book.131

124 §9(a) of P.L. 113-89, 128 Stat. 1024.
125 §9(c) of P.L. 113-89, 128 Stat. 1024. FEMA has stated it officially submitted the Affordability St udy on March 10,
2016 (email correspondence with FEMA Congressional Affairs staff, March 10, 2016). However, Part 2 of the
Affordability Study was available from the NAS website on December 11, 2015 .
126 FEMA, An Affordability Framework for the National Flood Insurance Program , Washington, DC, April 17, 2018,
at https://www.fema.gov/sites/default/files/2020-05/Affordability_april_2018.pdf.
127 For additional information on Risk Rating 2.0, see CRS Report R45999, National Flood Insurance Program: The
Current Rating Structure and Risk Rating 2.0 , by Diane P. Horn, and CRS Insight IN11777, National Flood Insurance
Program Risk Rating 2.0: Frequently Asked Questions, by Diane P. Horn.
128 See FEMA, Risk Rating 2.0: Equity in Action, at https://www.fema.gov/flood-insurance/risk-rating.
129 Ibid.
130 42 U.S.C. §4015(e).
131 See FEMA’s website for the Community Status Book at https://www.fema.gov/flood-insurance/work-with-nfip/
Congressional Research Service

21

Introduction to the National Flood Insurance Program (NFIP)

Notably, a community cannot be removed from the NFIP because of increased or excess flood
insurance claims and losses. Rather, probation and suspension only occur if the community fails
to uphold its obligations related to floodplain management.
A community can be placed on probation by FEMA if it is found that it is failing to adequately
enforce the floodplain management standards it has adopted. As established by regulations,
probation can result in a fee of $50 being charged to al policyholders in the community while the
community is given time to rectify FEMA’s concerns regarding their implementation of the
floodplain management standards. Ultimately, if the community does not correct its cited
deficiencies after given time periods described in regulations, the community wil be suspended
from the NFIP by FEMA.132
A community can also be involuntarily suspended from the NFIP for either
 failing to adopt an approved floodplain map and an approved set of floodplain
management standards within the time periods required by regulations; or
 repealing or revising its floodplain management standards to a level below the
minimum standards set forth in regulations.133
A suspended community may be reinstated to the NFIP once the relevant errors or deficiencies
provoking the suspension have been resolved to meet FEMA’s specification.
Communities that have been suspended or those communities that do not participate in the NFIP
can face significant consequences. Primarily, members of these communities are not able to
purchase primary flood insurance through the NFIP, which may result in significant uninsured
property risk in that community. However, communities may elect not to participate in the NFIP
because they have very little flood risk to begin with, given their particular geography or climate.
In addition, if a community does not participate in, or has been suspended from, the NFIP but has
been previously mapped by FEMA for flood hazards, it is difficult for the community and
policyholders to access other forms of federal assistance for areas in the floodplain.134 For
example, by law, no federal assistance may be provided for acquisition or construction purposes
in an area that has been identified as having special flood hazards unless the property is covered
by flood insurance.135 Likewise, federal y backed mortgages stil require flood insurance for
properties in the SFHA, so these property-owners would be required to obtain such insurance in
the private market. A community is al owed to leave the NFIP at its wil , but the potential
consequences of that decision are similar to those if the community has been suspended.
Funding
The funding for the NFIP is primarily maintained in an authorized account cal ed the National
Flood Insurance Fund (NFIF).136 General y, the NFIP has been funded through three methods:

community-status-book.
132 For additional details on probation, see 44 C.F.R. 59.24(b) and (c).
133 See 44 C.F.R. §59.24(a) and (d).
134 For more on how individuals may receive assistance following a flood, see CRS Report R44808, Federal Disaster
Assistance: The National Flood Insurance Program and Other Federal Disaster Assistance Program s Available to
Individuals and Households After a Flood , by Diane P. Horn. For additional details on the effects of suspension, see
FEMA’s website at https://www.fema.gov/glossary/suspension.
135 42 U.S.C. §4012a(a).
136 T he NFIF is authorized by 42 U.S.C. §4017.
Congressional Research Service

22

Introduction to the National Flood Insurance Program (NFIP)

 receipts from the premiums of flood insurance policies, including fees and
surcharges;
 direct annual appropriations for specific costs of the NFIP; and
 borrowing from the U.S. Treasury when the balance of the NFIF has been
insufficient to pay the NFIP’s obligations (e.g., insurance claims).
This section of the report briefly discusses each of these three methods of NFIP funding.
Premium Fees and Surcharges
As of June 30, 2021, the written premium, fees, and surcharges on approximately 5.016 mil ion
policies in force was about $4.6 bil ion.137 Included within the premiums are several fees and
surcharges on flood insurance policies mandated by law. First, the Federal Policy Fee (FPF) was
authorized by Congress in 1990 and helps pay for the administrative expenses of the program,
including floodplain mapping and some of the insurance operations.138 The amount of the FPF is
set by FEMA and can increase or decrease year to year. Since the April 2016 rating period, the
FPF has been set at a flat rate of $50 for SFIPs, and $25 for PRPs. Since October 2017, the FPF is
also $25 for contents-only policies.139 The FPF wil be $47 for al new NFIP policies and to
renewal policies written under Risk Rating 2.0.140
Second, a Reserve Fund assessment was authorized by Congress in BW-12 to establish and
maintain a Reserve Fund to cover future claim and debt expenses, especial y those from
catastrophic disasters.141 By law, FEMA is ultimately required to maintain a reserve ratio of 1% of
the total loss exposure through the Reserve Fund assessment.142 As of December 2020, the
amount required for the reserve fund ratio was approximately $13.3 bil ion.143 However, FEMA is
al owed to phase in the reserve fund assessment to obtain the ratio over time, with an intended
target of not less than 7.5% of the 1% reserve fund ratio in each fiscal year (so, using December
2020 figures, not less than approximately $1 bil ion each year). Since April 2016, using its
discretion, FEMA has charged every NFIP policy a Reserve Fund assessment. The Reserve Fund
assessment has increased from its original status, in October 2013, of 5% on al SFIPs and 0% on
PRPs to 15% of the premium charged for both SFIPs and PRPs.144 The reserve fund assessment
was increased to 18% on April 1, 2020.145

137 FEMA, Watermark, FY2021, Third Quarter, https://www.fema.gov/sites/default/files/documents/fema_fima-
watermark-FY2021-Q3.pdf.
138 42 U.S.C. §4014(a)(1)(B)(iii).
139 See FEMA, Flood Insurance Manual, Appendix J: Rate Tables, p. J-16, revised April 2021, https://www.fema.gov/
sites/default/files/documents/fema_nfip-all-flood-insurance-manual-apr-2021.pdf.
140 See FEMA, Flood Insurance Manual: How To Write, p. 3-51, revised October 1, 2021, https://www.fema.gov/sites/
default/files/documents/fema_nfip-flood-insurance-manual-sections-1-6_oct2021.pdf.
141 §100212 of P.L. 112-141, 126 Stat. 992, as codified at 42 U.S.C. §4017a.
142 42 U.S.C. §4017a(b).
143 Calculated by CRS using data provided by FEMA Congressional Affairs staff December 30, 2020.
144 See Federal Emergency Management Agency, Flood Insurance Manual, Appendix J: Rate Tables, p. J-16, revised
October 2020, at https://www.fema.gov/sites/default/files/2020-09/fema_flood-insurance-manual-full-edition_april-
oct2020.pdf.
145 Ibid.
Congressional Research Service

23

link to page 29 link to page 29 Introduction to the National Flood Insurance Program (NFIP)

In addition to the Reserve Fund assessment, al NFIP policies are also assessed a surcharge
following the passage of HFIAA.146 The amount of the surcharge is dependent on the type of
property being insured. For primary residences, the charge is $25; for al other properties, the
charge is $250.147 In April 1, 2019, FEMA began charging a 5% surcharge for severe repetitive
loss properties.148 This premium was increased to 10% on April 1, 2020,149 and increased again to
15% on April 1, 2021.150 Revenues from these surcharges are deposited into the Reserve Fund.
Appropriations and Offsetting Receipts
Table 5 displays how Congress has appropriated and authorized offsetting receipts for the NFIP
from FY2015 to FY2020. As provided for in law, al premiums from the sale of NFIP insurance
are transferred to FEMA and deposited in the NFIF.151 Congress then authorizes FEMA to
withdraw funds from the NFIF, and use those funds for specified purposes needed to operate the
NFIP. In addition to premiums, Congress has also provided annual appropriations to supplement
floodplain mapping activities. In addition to the mix of discretionary and mandatory funding
levels indicated in Table 5, which are set in appropriations legislation, fluctuating levels of
mandatory spending occur in the NFIP in order to pay and adjust claims on affected NFIP
policies.152

146 §8(a) of P.L. 113-89, 128 Stat. 1023.
147 For a description of how the surcharge is applied to different policy types, see FEMA, The HFIAA Surcharge Fact
Sheet, April 2015, https://dlnreng.hawaii.gov/nfip/wp-content/uploads/sites/11/2015/07/HFIAA-Surcharge-Fact -
Sheet_Final-April-2015.pdf .
148 See Federal Emergency Management Agency, April 1, 2019, and January 1, 2020, Program Changes,
Memorandum for Write Your Own Principal Coordinators and the NFIP Servicing Agent, W -18021a, October 1, 2018,
at https://nfipservices.floodsmart.gov/sites/default/files/w-18021a.pdf.
149 FEMA, Flood Insurance Manual, Appendix J: Rate Tables, revised April 2020, p. J-16, https://www.fema.gov/sites/
default/files/2020-05/fim_appendix-j-rate-tables_apr2020.pdf.
150 FEMA, April 1, 2021 and January 1, 2022 Program Changes, W-20020, p. 22, https://nfipservices.floodsmart.gov/
sites/default/files/w-20020.pdf.
151 42 U.S.C. §4017(b).
152 T his mandatory spending is authorized by 42 U.S.C. §4017(d)(1). All other expenses using the NFIF must be
authorized in appropriations acts, per 42 U.S.C. §4017(f).
Congressional Research Service

24

link to page 29 link to page 29 link to page 29 link to page 29 link to page 29 link to page 29 link to page 29 link to page 29 link to page 29 link to page 29 link to page 29
Table 5. Budget Authority for the NFIP, FY2015-FY2020
(mil ions of dol ars of budget authority, available for the fiscal year unless otherwise indicated)
Form of Budget
FY2015
FY2016
FY2017
FY2018
FY2019
FY2020
Authority
Activity
P.L. 114-4
P.L. 114-113
P.L. 115-31
P.L. 115-141
P.L. 116-6
P.L. 116-93
Discretionary
Flood hazard mapping and risk
$100.0
$190.0
$177.5
$262.6
$262.5
$263.0
appropriations
analysis programa (available until
expended)
Spending authority from
Salaries and expenses
$23.8
$25.3
$13.4b
$13.57b
$13.86b
$14.005b
offsetting col ections,
associated with flood
discretionary
management and flood
insurance operations
Floodplain management and
$155.5
$155.9
$168.4
$189.9
$188.3
$192.777
flood mappingc
Spending authority from
Operating expenses
$136.0
$133.3
$147.0b
$165.2b
$176.3b
$192.439b
offsetting col ections,
Commissions and taxes of
$1,139.0
$1,123.0
$1,123.0
$1,123.0
$1,123.0
$1,151.0
mandatory (amount is
agents
shown as a limitation
provided in appropriations
Interest on Treasury
Such sums as
Such sums as
Such sums as
Such sums as
Such sums as
Such sums as
legislation)
borrowingsd
necessary
necessary
necessary
necessary
necessary
necessary
Flood mitigation assistance
$150.0
$175.0
$175.1
$175.0
$175.0
$175.0
(available until expended)
Flood Insurance Advocate
$5.0
$5.0
$5.0
$5.0
$5.0
$5.0
Source: CRS analysis of P.L. 114-4, P.L. 114-113, P.L. 115-31, P.L. 115-141, P.L. 116-6, and P.L. 116-93.
a. General y, for necessary expenses, including administrative costs, related to the Risk MAP program authorized by 42 U.S.C. §§4101, 4101a, 4101b, 4101c, 4101d, and
4101e.
b. The FY2017, FY2018, FY2019, and FY2020 budgets include the amount of offsetting col ections for flood insurance operations within the “operating expenses” activity,
instead of the broader “salaries and expenses associated with flood management and flood insurance operations” activity as was done in P.L. 114-4 and P.L. 114-113.
c. Offsetting receipts for “floodplain management and flood mapping” can general y be viewed as supp lementing the discretionary appropriation for “flood hazard
mapping and risk analysis program.”
d. The amount of interest paid on borrowed amounts for the U.S. Treasury fluctuates annual y based on a number of factors, inclu ding the interest rate of the
borrowing; the available funds for interest and principal payments after claims payments; the amount borrowed; how the debt is being serviced in loans, and fiscal
decisions by FEMA to build the Reserve Fund as opposed to paying off principal and interest on the debt. FEMA reported interest payments of approximately
$318.59 mil ion in FY2015, $345.32 mil ion in FY2016, $393.76 mil ion in FY2017, $367.64 mil ion in FY2018, $415.34 in FY2019, and $216.82 in FY2020 (source:
FEMA, National Flood Insurance Program Debt Repayment Report, as of March 31, 2020, Report to Congress and the Secretary of the Treasury, May 17, 2021. Provided
by FEMA Congressional Affairs staff. Not available online.
CRS-25

Introduction to the National Flood Insurance Program (NFIP)

Borrowing from the U.S. Treasury, NFIP Debt
Congress has authorized FEMA to borrow no more than $30.425 bil ion from the U.S. Treasury
in order to operate the NFIP. The authorization for this borrowing would be reduced to $1 bil ion
after February 18, 2022, were the NFIP to be al owed to lapse.153 In January 2017, the NFIP
borrowed $1.6 bil ion due to losses in 2016 (the August 2016 Louisiana floods and Hurricane
Matthew). On September 22, 2017, the NFIP borrowed the remaining $5.825 bil ion from the
Treasury to cover claims from Hurricane Harvey, Hurricane Irma, and Hurricane Maria, reaching
the NFIP’s authorized borrowing limit of $30.425 bil ion.154 On October 26, 2017, Congress
cancel ed $16 bil ion of NFIP debt, making it possible for the program to pay claims for
Hurricanes Harvey, Irma, and Maria.155 This represents the first time that NFIP debt has been
cancel ed, although Congress appropriated funds between 1980 and 1985 to repay NFIP debt.156
FEMA borrowed another $6.1 bil ion on November 9, 2017, to fund estimated 2017 losses,
including those incurred by Hurricanes Harvey, Irma, and Maria and anticipated programmatic
activities, bringing the debt up to $20.525 bil ion. The NFIP currently has $9.9 bil ion of
remaining borrowing authority.157
The NFIP’s debt to the U.S. Treasury cannot be tied directly to any single incident, as any
insurance claim paid by the NFIP is in some way responsible for the existing debt of the NFIP
(i.e., a dollar paid in claims, and therefore expended by the NFIP, following a minor flooding
incident is no different than a dollar paid following a major hurricane). However, the NFIP was
forced to borrow heavily to pay claims in the aftermath of two catastrophic flood seasons, the
2005 hurricane season (particularly Hurricanes Katrina, Rita, and Wilma) and Hurricane Sandy in
2012.158 For example, following Hurricane Sandy, Congress passed P.L. 113-1 to increase the
borrowing limit of the NFIP from $20.775 bil ion to the current $30.425 bil ion. Prior to
Hurricane Katrina in 2005, the NFIP had general y been able to cover its costs, borrowing
relatively smal amounts from the U.S. Treasury to pay claims, and then repaying the loans with
interest.
The NFIP’s debt is conceptual y 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. For example, from FY2006 to FY2020 (i.e.,
since the NFIP borrowed funds following Hurricane Katrina), the NFIP has paid $2.82 bil ion in
principal repayments and $5.41 bil ion in interest to service the debt through the premiums
collected on insurance policies.159 Currently the NFIP is paying over $1 mil ion in interest per day
on the debt accrued from past events. FEMA predicts that over the next 10 years the NFIP wil

153 42 U.S.C. §4016(a).
154 FEMA, The Watermark, Fiscal Year 2018, First Quarter, vol. 1, March 21, 2018, at https://www.fema.gov/sites/
default/files/2020-05/FIMA_Watermark_FY18_Q1.pdf.
155 P.L. 115-72, T itle III, §308.
156 Funds for “repayment under notes” were appropriated in P.L. 96-526, 94 Stat. 3053; P.L. 97-101, 95 Stat. 1425; P.L.
97-272, 96 Stat. 1169; P.L. 98-45, 97 Stat. 228; P.L. 98-371, 98 Stat. 1224; and P.L. 99-160, 99 Stat. 918.
157 FEMA, The Watermark, FY2020, T hird Quarter, vol. 11, at https://www.fema.gov/sites/default/files/2020-09/
fema_watermark_report_06-2020.pdf.
158 For accounting of the NFIP’s premium revenues and claims/loss data, see FEMA Watermark: National Flood
Insurance Program Financial Statem ents, at https://www.fema.gov/flood-insurance/work-with-nfip/watermark-
financial-statements.
159 159 FEMA, Watermark, FY2021, Third Quarter, https://www.fema.gov/sites/default/files/documents/fema_fima-
watermark-FY2021-Q3.pdf.
Congressional Research Service

26

Introduction to the National Flood Insurance Program (NFIP)

pay an additional $5.8 bil ion in interest expenses, and wil have paid $10.6 bil ion in total
interest expenses by the end of FY2029.160
As required by law, FEMA submits semi-annual debt repayment reports to Congress on how the
borrowed amount from the U.S. Treasury could be repaid within a 10-year period.161 The most
recent report concluded that, although the NFIP’s financial position is expected to improve over
the time period, it is not possible for the NFIP, as currently structured, to fully repay $20.525
bil ion in debt over the next 10 years.162
Whether or not FEMA wil ultimately be able to pay off the debt is largely dependent on future
insurance claims, namely if a catastrophic flooding incident such as Hurricanes Harvey, Sandy, or
Katrina occurs again and with what frequency. FEMA noted that the latest private sector
catastrophe modeling demonstrates that such events are not outside the expected range of NFIP
losses. A single storm in the United States the size of Hurricane Katrina or larger ($21.2 bil ion in
present dollars) has a 1%-2% chance of occurring in any given year. A coastal flood event at least
as large as Hurricane Sandy ($9.8 bil ion in present dollars), or an inland flood event at least as
large as the 2016 Louisiana flood ($2.6 bil ion in present dollars) each have a 2%-5% chance of
occurring in any given year.163
FEMA’s current policy is to prioritize building up the NFIP’s cash reserves over paying down
principal.164 Under its current authorization, the only means the NFIP has to pay off the debt is
through the accrual of premium revenues in excess of outgoing claims, and from payments made
out of the growing Reserve Fund.
NFIP Purchase of Reinsurance
In HFIAA-14, Congress revised the authority of FEMA to secure reinsurance165 for the NFIP
from the private reinsurance and capital markets.166 The purchase of private market reinsurance
reduces the likelihood of FEMA needing to borrow from the Treasury to pay claims. However,
since FEMA is withdrawing funds from the Reserve Fund to pay for this reinsurance, it
subsequently increases the cost of insurance to policyholders. FEMA’s modeling of the NFIP
portfolio before the reinsurance purchase suggested that there was a 17.2% chance of losses from
an event exceeding $4 bil ion in 2017.167
In September 2016, FEMA secured its first placement of reinsurance for the NFIP, contracting for
reinsurance cover which ran from September 19, 2016, through March 19, 2017, structured into
two coverage layers. Under the first layer, the reinsurers would indemnify FEMA $1 mil ion for
flood claims losses that exceed $5 mil ion. Under the second layer, the reinsurers would

160 FEMA, National Flood Insurance Program Debt Repayment Report, as of March 31, 2020 , Report to Congress and
the Secretary of the T reasury, May 17, 2021, p. 11. Provided by FEMA Congressional Affairs staff.
161 See 42 U.S.C. §4016(d), as enacted by §100213(a) of P.L. 112-141 (BW-12).
162 FEMA, National Flood Insurance Program Debt Repayment Report as of September 30, 2019, September 15, 2020,
p. 6. Provided to CRS by FEMA Congressional Affairs Staff, January 4, 2020.
163 Ibid., pp. 3-4.
164 Ibid., p. 10.
165 Reinsurance is defined as a transaction between a primary insurer and another licensed (re)insurer where the
reinsurer agrees to cover all or part of the losses and/or loss adjustment expenses of the primary insurer. See NAIC,
Glossary of Insurance Term s, http://www.naic.org/consumer_glossary.htm#R.
166 See §10 of P.L. 113-89, 128 Stat. 1025, as codified at 42 U.S.C. §4081(e).
167 Ibid.
Congressional Research Service

27

Introduction to the National Flood Insurance Program (NFIP)

indemnify FEMA $1 mil ion when the total losses from a single flood event exceed $5.5
bil ion.168
In January 2017, FEMA purchased $1.042 bil ion of insurance, to cover the period from January
1, 2017, to January 1, 2018, for a reinsurance premium of $150 mil ion. Under this agreement, the
reinsurance covered 26% of losses between $4 bil ion and $8 bil ion arising from a single
flooding event. Claims paid by FEMA for Hurricane Harvey exceeded the $9 billion threshold,
triggering the full 2017 reinsurance.169
In January 2018, FEMA purchased $1.46 bil ion of reinsurance to cover the period from January
1, 2018, to January 1, 2019, for a premium of $235 mil ion. The agreement was structured to
cover losses above $4 bil ion for a single flooding event, covering 18.6% of losses between $4
bil ion and $6 bil ion, and 54.3% of losses between $6 bil ion and $8 bil ion.170 In August 2018,
FEMA entered into its first transfer of NFIP risk to private risk markets through an insurance-
linked securities transfer, in the form of a three-year agreement with Hannover Re, a reinsurance
company. Hannover Re acted as a “transformer,” transferring $500 mil ion of the NFIP’s
financial risk to the capital markets by sponsoring issuance of an indemnity-triggered catastrophe
bond. Hannover Re indemnified FEMA for a portion of claims for a single qualifying flooding
event that occurs between August 1, 2018, and July 31, 2021. The agreement was structured into
two tranches. The first provided reinsurance coverage for 3.5% of losses between $5 and $10
bil ion, and the second for 13% of losses between $7.5 and $10 bil ion. FEMA paid a premium of
$62 mil ion for each of the first year and second year of coverage. Unlike the earlier reinsurance
purchases, which covered al NFIP flood losses, the catastrophe bond applied only to flooding
resulting directly or indirectly from a named storm and covers only the 50 states, the District of
Columbia, Puerto Rico, and the U.S. Virgin Islands. Combined with the January 2018 reinsurance
placement, FEMA transferred $1.96 bil ion of the NFIP’s flood risk for the 2018 hurricane season
to the private sector.171
In January 2019, FEMA purchased $1.32 bil ion of reinsurance to cover the period from January
1, 2019, to January 1, 2020, for a premium of $186 mil ion. The agreement was structured to
cover losses above $4 bil ion for a single flooding event, covering 14% of losses between $4
bil ion and $6 bil ion, and 25.6% of losses between $6 bil ion and $8 bil ion, and 26.6% of losses
between $8 bil ion and $10 bil ion.172 FEMA issued a second catastrophe bond on April 16, 2019,
to transfer an additional $300 mil ion of the NFIP’s financial risk to the capital markets. The
agreement is structured to cover 2.5% of losses between $6 bil ion and $8 bil ion, and 12.5% of
losses between $8 bil ion and $10 bil ion. FEMA paid a premium of $32 mil ion for the first year
of coverage and $38 mil ion for the second year of coverage.173
In January 2020, FEMA purchased $1.33 bil ion of reinsurance to cover the period from January
1, 2020, to January 1, 2021, for a premium of $205 mil ion. The agreement was structured to

168 See FEMA, National Flood Insurance Program Reinsurance Program, at https://www.fema.gov/flood-insurance/
work-with-nfip/reinsurance.
169 Email correspondence from FEMA Congressional Affairs Staff, August 2, 2019.
170 FEMA, National Flood Insurance Program (NFIP) Reinsurance Program , at https://www.fema.gov/flood-
insurance/work-with-nfip/reinsurance.
171 Ibid. For additional information on this, see CRS Insight IN10965, The National Flood Insurance Program (NFIP),
Reinsurance, and Catastrophe Bonds, by Diane P. Horn and Baird Webel.
172 FEMA, National Flood Insurance Program (NFIP) Reinsurance Program , at https://www.fema.gov/flood-
insurance/work-with-nfip/reinsurance.
173 Ibid.
Congressional Research Service

28

link to page 33 link to page 33 Introduction to the National Flood Insurance Program (NFIP)

cover losses above $4 bil ion for a single flooding event, covering 10.25% of losses between $4
bil ion and $6 bil ion, 34.68% of losses between $6 bil ion and $8 bil ion, and 21.8% of losses
between $8 bil ion and $10 bil ion.174 In February 2020, FEMA issued a third catastrophe bond to
transfer an additional $400 mil ion of the NFIP’s financial risk to the capital markets. The
agreement is structured to cover 3.33% of losses between $6 bil ion and $9 bil ion, and 30% of
losses between $9 bil ion and $10 bil ion. FEMA paid a premium of $50.28 mil ion for the first
year of coverage.175
In January 2021, FEMA purchased $1.153 bil ion of reinsurance to cover the period from January
1, 2021, to January 1, 2022, for a reinsurance premium of $195.8 mil ion.176 In February 2021,
FEMA issued a third catastrophe bond to transfer an additional $575 mil ion of the NFIP’s
financial risk to the capital markets.177
FEMA has not claimed on the reinsurance purchased in 2018, 2019, 2020, or 2021. Unless
another large scale flooding event occurs, the balance of premiums vs. claims is likely to be
negative in the next two to three years if FEMA continues similar reinsurance purchases.
Expiration of Certain NFIP Authorities
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 general y tie to the expiration of key components of the program. Since the end of FY2017,
17 short-term NFIP reauthorizations have been enacted. These reauthorizations are listed in Table
6. The NFIP is currently authorized until February 18, 2022.
Unless reauthorized or amended by Congress, the following wil occur after February 18, 2022:
 The authority to provide new flood insurance contracts wil expire.178 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.179
Other activities of the program would technical y remain authorized following February 18, 2022,
such as the issuance of FMA grants.180 However, the expiration of the key authorities described
above would have varied, general y serious effects on these remaining NFIP activities.
Table 6. Short-Term Extensions of the NFIP Since End of FY2017
Public Law
Date to Which Authorization Was Extended
P.L. 115-56
December 8, 2017
P.L. 115-90
December 22, 2017
P.L. 115-96
January 19, 2018

174 Ibid.
175 Ibid.
176 Ibid.
177 Ibid.
178 42 U.S.C. §4026.
179 42 U.S.C. §4016(a).
180 See 42 U.S.C. §4104c and 42 U.S.C. §4104d.
Congressional Research Service

29

Introduction to the National Flood Insurance Program (NFIP)

Public Law
Date to Which Authorization Was Extended
NFIP lapsed January 20 to January 22, 2018

P.L. 115-120
February 8, 2018
NFIP lapsed for 8 hours on February 9, 2018

P.L. 115-123
March 23, 2018
P.L. 115-141
July 31, 2018
P.L. 115-225
November 30, 2018
P.L. 115-281
December 7, 2018
P.L. 115-298
December 21, 2018
P.L. 115-396
May 31, 2019
P.L. 116-19
June 14, 2019
P.L. 116-20
September 30, 2019
P.L. 116-59
November 21, 2019
P.L. 116-69
December 20, 2019
P.L. 116-94
September 30, 2020
P.L. 116-159
September 30, 2021
P.L. 117-43
December 3, 2021
P.L. 117-70
February 18, 2022
Source: CRS analysis of legislation.

Author Information

Diane P. Horn
Baird Webel
Analyst in Flood Insurance and Emergency
Specialist in Financial Economics
Management

Acknowledgments
Former CRS Analyst Jared Brown was the original author of this report.
Congressional Research Service

30

Introduction to the National Flood Insurance Program (NFIP)

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 n ot 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.

Congressional Research Service
R44593 · VERSION 46 · UPDATED
31