A Brief Introduction to the National Flood Insurance Program
Updated March 29, 2024
A Brief Introduction to the National Flood Insurance Program
The National Flood Insurance Program (NFIP) is the
NFIP flood insurance policies are sold only in participating
primary source of flood insurance coverage for residential
communities and are offered to both property owners and
properties in the United States. The NFIP has two main
renters and to residential and nonresidential properties.
policy goals: (1) to provide access to primary flood
NFIP policies have relatively low coverage limits,
insurance, thereby allowing for the transfer of some of the
particularly for nonresidential properties or properties in
financial risk of property owners to the federal government;
high-cost areas. The maximum coverage for single-family
and (2) to mitigate and reduce the nation’s comprehensive
dwellings (which also includes single-family residential
flood risk through the development and implementation of
units within a 2-4 family building) is $100,000 for contents
floodplain management standards. A longer-term objective
and up to $250,000 for building coverage. The maximum
of the NFIP is to reduce federal expenditure on disaster
available coverage limit for other residential buildings is
assistance after floods. As a public insurance program, the
$500,000 for building coverage and $100,000 for contents
goals of the NFIP are different from the goals of private-
coverage, and the maximum coverage limit for
sector insurance companies. It encompasses social goals to
nonresidential business buildings is $500,000 for building
provide flood insurance in flood-prone areas to property
coverage and $500,000 for contents coverage.
owners who otherwise would not be able to obtain it and to
reduce the government’s cost after floods. The NFIP also
Flood Mapping and Mitigation
engages in many “noninsurance” activities in the public
The NFIP approaches the goal of reducing comprehensive
interest: it identifies and maps flood hazards, disseminates
flood risk primarily by requiring participating communities
flood-risk information through flood maps, requires
to collaborate with FEMA to develop and adopt flood maps
community land-use and building-code standards,
called Flood Insurance Rate Maps (FIRMs). An area of
contributes to community resilience by providing a
specific focus of the FIRM is the Special Flood Hazard
mechanism to fund rebuilding after a flood, and offers
Area (SFHA). The SFHA is defined by FEMA as an area
grants and incentive programs for household- and
with a 1% or greater risk of flooding every year. FIRMs
community-level investments in flood-risk reduction.
provide the basis for identifying properties whose owners
are required to purchase flood insurance and establishing
Over 22,000 communities in 56 states and jurisdictions
floodplain management standards that communities must
participate in the NFIP, with over 4.7 million policies
adopt and enforce as part of their participation in the NFIP.
providing almost $1.28 trillion in coverage. The program
There is no consistent, definitive timetable for revising and
collects about $4.3 billion in annual premium revenue.
updating FIRMs for a particular community. Generally,
Floods are the most common and costly natural disaster in
FIRMs may require updating after significant new building
the U.S.
development in or near the flood zone, changes to flood-
Structure of the NFIP
protection systems, or environmental changes in the
community. Statutory guidelines set out the procedure for
The NFIP is managed by the Federal Emergency
developing new FIRMs for a community. For example,
Management Agency (FEMA) through its subcomponent,
FEMA is required to conduct extensive communication and
the Federal Insurance and Mitigation Administration. A
outreach efforts with the community during the mapping
core design feature of the NFIP is that communities are not
process, which includes several review and comment
required to participate in the program by any law or
periods of 30 to 90 days. Communities and individuals also
regulation, but instead participate voluntarily in order to
have legal recourse to appeal the FIRM updating process.
obtain access to NFIP flood insurance. Communities that
After a FIRM is finalized and adopted by a community, it
choose to participate in the NFIP are required to adopt land
can still be revised to correct for errors in map accuracy. To
use and control measures with effective enforcement
correct these inaccuracies, FEMA allows individuals and
provisions and to regulate development in the floodplain.
communities to request letters amending a FIRM.
FEMA has set forth in federal regulations the minimum
standards required for participation in the NFIP; however,
FEMA also operates a Flood Mitigation Assistance (FMA)
these standards have the force of law only because they are
Grant Program that is funded through revenue collected by
adopted and enforced by a state or local government. Legal
the NFIP. FMA grants are only available to communities
enforcement of the floodplain management standards is the
that participate in the NFIP, to reduce or eliminate flood
responsibility of the participating NFIP community, which
damage and structures insurable under the NFIP,
can elect to adopt higher standards as a means of mitigating
particularly repetitive loss and severe repetitive loss
flood risk. In addition, FEMA operates a program, called
structures. The Infrastructure Investment and Jobs Act
the Community Rating System, to incentivize NFIP
appropriated $3.5 billion for the FMA program, with $700
communities to adopt more rigorous floodplain
million for each of FY2022 to FY2026.
management standards.
https://crsreports.congress.gov
A Brief Introduction to the National Flood Insurance Program
The Mandatory Purchase Requirement
accrual of premium revenues in excess of outgoing claims,
In a community that participates or has participated in the
and from payments made out of the reserve fund. For
NFIP, property owners in the mapped SFHA are required to
example, since 2005 the NFIP has paid $2.82 billion in
purchase flood insurance as a condition of receiving a
principal repayments and $6.17 billion in interest to service
federally backed mortgage. Federal agencies, federally
the debt through the premiums collected on insurance
regulated lending institutions, and government-sponsored
policies. The cancellation of $16 billion of NFIP debt in
enterprises must require these property owners to purchase
October 2017 represents the first time that NFIP debt has
flood insurance as a condition of any mortgage that these
been cancelled, although Congress appropriated funds
entities make, guarantee, or purchase. To comply with this
between 1980 and 1985 to repay NFIP debt.
mandate, property owners may purchase flood insurance
Risk Rating 2.0
through the NFIP or through a private company, as long as
FEMA introduced a new pricing methodology, known as
the private flood insurance meets the condition set by
Risk Rating 2.0, which represents the biggest change to the
statute that it “provides flood insurance coverage which is
at least as broad as the coverage” of the NFIP, among other
way the NFIP calculates flood insurance premiums since
the program began in 1968. The new rates went into effect
conditions. The mandatory purchase requirement is
on October 1, 2021, for new NFIP policies and went into
enforced by the lender, rather than FEMA. Property owners
effect on April 1, 2022, for existing NFIP policyholders.
who do not obtain flood insurance when required may find
Under the change, premiums for individual properties are
they are not eligible for certain types of disaster assistance
tied to their actual flood risk and flood zones are no longer
after a flood.
used in calculating a property’s flood insurance premium,
Financial Standing of the NFIP
in contrast to the legacy rating system in which properties
The NFIP is funded from premiums, fees, and surcharges
with the same NFIP flood risk were charged the same rates.
paid by NFIP policyholders; direct annual appropriations
Under Risk Rating 2.0 the premium is calculated based on
for specific costs of the NFIP (currently only for the flood
the specific features of an individual property. Risk Rating
hazard mapping and risk analysis program); and borrowing
2.0 incorporates a broader range of flood frequencies and
from the Treasury when the balance of the National Flood
sources than the legacy rating system, including flooding
Insurance Fund is insufficient to pay the NFIP’s obligations
from rivers, storm surge, and heavy rainfall. Flood zones
(e.g., insurance claims). The NFIP was not designed to
will still be used for floodplain management purposes, and
retain funding to cover claims for truly extreme events;
the boundary of the SFHA will still be required for the
instead, the statute allows the program to borrow money
mandatory purchase requirement.
from the Treasury for such events. For most of the NFIP’s
history, the program was able to borrow relatively small
Reauthorization of the NFIP
amounts from the Treasury to pay claims and then repay the
Since the end of FY2017, 30 short-term NFIP extensions
loans with interest. However, this changed when Congress
have been enacted. The NFIP is currently authorized until
increased the level of NFIP borrowing to $20.775 billion to
September 30, 2024. The statute for the NFIP does not
pay claims in the aftermath of the 2005 hurricane season
contain a comprehensive expiration, termination, or sunset
(particularly Hurricanes Katrina, Rita, and Wilma).
provision for the whole of the program. Rather, the NFIP
Congress increased the borrowing limit again following
has multiple different legal provisions that generally tie to
Hurricane Sandy to its current limit of $30.425 billion.
the expiration of key components of the program. Unless
reauthorized or amended by Congress, the following will
The 2017 hurricane season was the second-largest claims
occur on September 30, 2024: (1) the authority to provide
year in the NFIP’s history—second only to the 2005
new flood insurance contracts will expire; however,
hurricane season. At the beginning of the 2017 hurricane
insurance contracts entered into before the expiration would
season, the NFIP owed $24.6 billion. On September 22,
continue until the end of their policy term of one year; and
2017, the NFIP borrowed the remaining $5.825 billion from
(2) the authority for NFIP to borrow funds from the
the Treasury to cover claims from Hurricane Harvey,
Treasury will be reduced from $30.425 billion to $1 billion.
reaching the NFIP’s authorized borrowing limit of $30.425
CRS Products About the NFIP
billion. On October 26, 2017, Congress cancelled $16
CRS Report R44593, Introduction to the National Flood
billion of NFIP debt to pay claims for Hurricanes Harvey,
Insurance Program (NFIP).
Irma, and Maria. FEMA borrowed another $6.1 billion on
November 9, 2017, to fund estimated 2017 losses, including
CRS Insight IN10784, National Flood Insurance Program
those incurred by Hurricanes Harvey, Irma, and Maria,
Borrowing Authority.
bringing the debt back up to $20.525 billion. The NFIP has
not needed to borrow from the Treasury since 2017. As of
CRS Insight IN10835, What Happens If the National Flood
March 2024, the NFIP has $9.9 billion of remaining
Insurance Program (NFIP) Lapses?
borrowing authority, as well as possible reinsurance
payments of over $1.9 billion.
CRS Insight IN11777, National Flood Insurance Program
The NFIP’s debt is conceptually owed by current and future
Risk Rating 2.0: Frequently Asked Questions.
participants in the NFIP, as the insurance program itself
CRS Report R45242, Private Flood Insurance and the
owes the debt to the Treasury and pays for accruing interest
National Flood Insurance Program.
on that debt through the premium revenues of
policyholders. Under its current authorization, the only
means the NFIP has to pay off the debt is through the
https://crsreports.congress.gov
A Brief Introduction to the National Flood Insurance Program
Diane P. Horn, Specialist in Flood Insurance and
Emergency Management
IF10988
Disclaimer
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https://crsreports.congress.gov | IF10988 · VERSION 25 · UPDATED