Updated January 4, 2023
A Brief Introduction to the National Flood Insurance Program
The National Flood Insurance Program (NFIP) is the
communities to adopt more rigorous floodplain
primary source of flood insurance coverage for residential
management standards.
properties in the United States. The NFIP has two main
NFIP flood insurance policies are sold only in participating
policy goals: (1) to provide access to primary flood
communities and are offered to both property owners and
insurance, thereby allowing for the transfer of some of the
renters and to residential and nonresidential properties.
financial risk of property owners to the federal government;
NFIP policies have relatively low coverage limits,
and (2) to mitigate and reduce the nation’s comprehensive
particularly for nonresidential properties or properties in
flood risk through the development and implementation of
high-cost areas. The maximum coverage for single-family
floodplain management standards. A longer-term objective
dwellings (which also includes single-family residential
of the NFIP is to reduce federal expenditure on disaster
units within a 2-4 family building) is $100,000 for contents
assistance after floods. As a public insurance program, the
and up to $250,000 for building coverage. The maximum
goals of the NFIP are different from the goals of private-
available coverage limit for other residential buildings is
sector insurance companies. It encompasses social goals to
$500,000 for building coverage and $100,000 for contents
provide flood insurance in flood-prone areas to property
coverage, and the maximum coverage limit for
owners who otherwise would not be able to obtain it and to
reduce the government’s cost after floods. The NFIP also
nonresidential business buildings is $500,000 for building
engages in many “noninsurance” activities in the public
coverage and $500,000 for contents coverage.
interest: it identifies and maps flood hazards, disseminates
Flood Mapping
flood-risk information through flood maps, requires
The NFIP approaches the goal of reducing comprehensive
community land-use and building-code standards,
flood risk primarily by requiring participating communities
contributes to community resilience by providing a
to collaborate with FEMA to develop and adopt flood maps
mechanism to fund rebuilding after a flood, and offers
called Flood Insurance Rate Maps (FIRMs). An area of
grants and incentive programs for household- and
specific focus of the FIRM is the Special Flood Hazard
community-level investments in flood-risk reduction.
Area (SFHA). The SFHA is defined by FEMA as an area
Over 22,000 communities in 56 states and jurisdictions
with a 1% or greater risk of flooding every year. FIRMs
participate in the NFIP, with nearly 5 million policies
provide the basis for identifying properties whose owners
providing almost $1.3 trillion in coverage. The program
are required to purchase flood insurance and establishing
collects about $4 billion in annual premium revenue. Floods
floodplain management standards that communities must
are the most common natural disaster in the United States.
adopt and enforce as part of their participation in the NFIP.
All 50 states, plus DC, Puerto Rico, Guam, American
There is no consistent, definitive timetable for revising and
Samoa, the U.S. Virgin Islands, and the Northern Mariana
updating FIRMs for a particular community. Generally,
Islands have experienced flood events since May 2018.
FIRMs may require updating after significant new building
development in or near the flood zone, changes to flood-
Structure of the NFIP
protection systems, or environmental changes in the
The NFIP is managed by the Federal Emergency
community. Statutory guidelines set out the procedure for
Management Agency (FEMA) through its subcomponent,
developing new FIRMs for a community. For example,
the Federal Insurance and Mitigation Administration. A
FEMA is required to conduct extensive communication and
core design feature of the NFIP is that communities are not
outreach efforts with the community during the mapping
required to participate in the program by any law or
process, which includes several review and comment
regulation, but instead participate voluntarily in order to
periods of 30 to 90 days. Communities and individuals also
obtain access to NFIP flood insurance. Communities that
have legal recourse to appeal the FIRM updating process.
choose to participate in the NFIP are required to adopt land
After a FIRM is finalized and adopted by a community, it
use and control measures with effective enforcement
can still be revised to correct for errors in map accuracy. To
provisions and to regulate development in the floodplain.
correct these inaccuracies, FEMA allows individuals and
FEMA has set forth in federal regulations the minimum
communities to request letters amending a FIRM.
standards required for participation in the NFIP; however,
these standards have the force of law only because they are
The Mandatory Purchase Requirement
adopted and enforced by a state or local government. Legal
In a community that participates or has participated in the
enforcement of the floodplain management standards is the
NFIP, property owners in the mapped SFHA are required to
responsibility of the participating NFIP community, which
purchase flood insurance as a condition of receiving a
can elect to adopt higher standards as a means of mitigating
federally backed mortgage. Federal agencies, federally
flood risk. In addition, FEMA operates a program, called
regulated lending institutions, and government-sponsored
the Community Rating System, to incentivize NFIP
enterprises must require these property owners to purchase
flood insurance as a condition of any mortgage that these
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A Brief Introduction to the National Flood Insurance Program
entities make, guarantee, or purchase. To comply with this
been cancelled, although Congress appropriated funds
mandate, property owners may purchase flood insurance
between 1980 and 1985 to repay NFIP debt.
through the NFIP or through a private company, as long as
Risk Rating 2.0
the private flood insurance meets the condition set by
FEMA introduced a new pricing methodology, known as
statute that it “provides flood insurance coverage which is
at least as broad as the coverage” of the NFIP, among other
Risk Rating 2.0, which represents the biggest change to the
way the NFIP calculates flood insurance premiums since
conditions. The mandatory purchase requirement is
the program began in 1968. The new rates went into effect
enforced by the lender, rather than FEMA. Property owners
on October 1, 2021, for new NFIP policies and went into
who do not obtain flood insurance when required may find
effect on April 1, 2022, for existing NFIP policyholders.
they are not eligible for certain types of disaster assistance
Under the change, premiums for individual properties are
after a flood.
tied to their actual flood risk and flood zones are no longer
Financial Standing of the NFIP
used in calculating a property’s flood insurance premium,
The NFIP is funded from premiums, fees, and surcharges
in contrast to the legacy rating system in which properties
paid by NFIP policyholders; direct annual appropriations
with the same NFIP flood risk were charged the same rates.
for specific costs of the NFIP (currently only for the flood
Under Risk Rating 2.0 the premium is calculated based on
hazard mapping and risk analysis program); and borrowing
the specific features of an individual property. Risk Rating
from the Treasury when the balance of the National Flood
2.0 incorporates a broader range of flood frequencies and
Insurance Fund is insufficient to pay the NFIP’s obligations
sources than the legacy rating system, including flooding
(e.g., insurance claims). The NFIP was not designed to
from rivers, storm surge, and heavy rainfall. Flood zones
retain funding to cover claims for truly extreme events;
will still be used for floodplain management purposes, and
instead, the statute allows the program to borrow money
the boundary of the Special Flood Hazard Area will still be
from the Treasury for such events. For most of the NFIP’s
required for the mandatory purchase requirement.
history, the program was able to borrow relatively small
amounts from the Treasury to pay claims and then repay the
Reauthorization of the NFIP
loans with interest. However, this changed when Congress
Since the end of FY2017, 25 short-term NFIP
increased the level of NFIP borrowing to $20.775 billion to
reauthorizations have been enacted. The NFIP is currently
pay claims in the aftermath of the 2005 hurricane season
authorized until September 30, 2023. The statute for the
(particularly Hurricanes Katrina, Rita, and Wilma).
NFIP does not contain a comprehensive expiration,
Congress increased the borrowing limit again following
termination, or sunset provision for the whole of the
Hurricane Sandy to its current limit of $30.425 billion.
program. Rather, the NFIP has multiple different legal
provisions that generally tie to the expiration of key
The 2017 hurricane season was the second-largest claims
components of the program. Unless reauthorized or
year in the NFIP’s history—second only to the 2005
amended by Congress, the following will occur on
hurricane season. At the beginning of the 2017 hurricane
September 30, 2023: (1) the authority to provide new flood
season, the NFIP owed $24.6 billion. On September 22,
insurance contracts will expire; however, insurance
2017, the NFIP borrowed the remaining $5.825 billion from
contracts entered into before the expiration would continue
the Treasury to cover claims from Hurricane Harvey,
until the end of their policy term of one year; and (2) the
reaching the NFIP’s authorized borrowing limit of $30.425
authority for NFIP to borrow funds from the Treasury will
billion. On October 26, 2017, Congress cancelled $16
be reduced from $30.425 billion to $1 billion.
billion of NFIP debt to make it possible for the program to
CRS Products About the NFIP
pay claims for Hurricanes Harvey, Irma, and Maria. FEMA
CRS Report R44593, Introduction to the National Flood
borrowed another $6.1 billion on November 9, 2017, to
Insurance Program (NFIP).
fund estimated 2017 losses, including those incurred by
Hurricanes Harvey, Irma, and Maria, bringing the debt back
CRS Insight IN10784, National Flood Insurance Program
up to $20.525 billion. The NFIP has not needed to borrow
Borrowing Authority.
from the Treasury since 2017. As of January 2023, the
NFIP has $9.9 billion of remaining borrowing authority, as
CRS Insight IN10835, What Happens If the National Flood
well as possible reinsurance payments of up to $2.34
Insurance Program (NFIP) Lapses?
billion.
The NFIP’s debt is conceptually owed by current and future
CRS Insight IN11777, National Flood Insurance Program
Risk Rating 2.0: Frequently Asked Questions.
participants in the NFIP, as the insurance program itself
owes the debt to the Treasury and pays for accruing interest
CRS Report R45242, Private Flood Insurance and the
on that debt through the premium revenues of
National Flood Insurance Program.
policyholders. Under its current authorization, the only
means the NFIP has to pay off the debt is through the
CRS Insight IN10965, The National Flood Insurance
accrual of premium revenues in excess of outgoing claims,
Program (NFIP), Reinsurance, and Catastrophe Bonds.
and from payments made out of the reserve fund. For
example, since 2005 the NFIP has paid $2.82 billion in
principal repayments and $5.62 billion in interest to service
Diane P. Horn, Specialist in Flood Insurance and
the debt through the premiums collected on insurance
Emergency Management
policies. The cancellation of $16 billion of NFIP debt in
IF10988
October 2017 represents the first time that NFIP debt has
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A Brief Introduction to the National Flood Insurance Program


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https://crsreports.congress.gov | IF10988 · VERSION 20 · UPDATED

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