The National Flood Insurance Program: Status and Remaining Issues for Congress

The National Flood Insurance Program: Status and Remaining Issues for Congress

The National Flood Insurance Program: Status
and Remaining Issues for Congress
Rawle O. King
Specialist in Financial Economics and Risk Assessment
February 6, 2013
Congressional Research Service
7-5700
www.crs.gov
R42850
CRS Report for Congress
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epared for Members and Committees of Congress

The National Flood Insurance Program: Status and Remaining Issues for Congress

Summary
In late October 2012, Hurricane Sandy caused widespread flood-related property damage in
coastal areas of states throughout the Northeast and the mid-Atlantic region. The storm exposed
vulnerabilities in the region’s public transportation and infrastructure and underscored the
nation’s growing exposure to extreme weather events, sea-level rise, and coastal flooding.
Although the full economic cost of Sandy will not be known for years, the storm has resulted in
substantial federal disaster recovery assistance, including tens of billions for flood and hurricane
protection and coastal restoration, and the rebuilding of mass transit systems and housing.
Government payouts under the National Flood Insurance Program (NFIP) are estimated to be
between $12 billion and $15 billion in flood insurance claims. In the immediate aftermath of
Sandy, this amount quickly exceeded the $4 billion in cash and remaining borrowing authority
from the Treasury Department. By January 2013, the NFIP had processed more than 140,000
claims for Sandy-related damages totaling about $1.7 billion. To protect the financial integrity of
the NFIP and ensure that the NFIP has the financial resources to cover its existing commitments
following the devastation caused by Sandy, the Obama Administration requested that Congress
pass legislation to increase the NFIP’s borrowing authority. On January 4, 2013, Congress passed,
and the President two days later signed into law, H.R. 41 to provide a $9.7 billion increase in the
NFIP’s borrowing authority, from $20.725 billion to $30.425 billion, to pay flood claims related
to Hurricane Sandy.
Policymakers have expressed views on several flood management challenges facing the NFIP.
These challenges include finding ways to (1) improve the accuracy of flood risk assessment and
mapping of hurricane and coastal storm hazard areas; (2) strengthen the financial sustainability of
the NFIP in the face of expected future extreme weather events (climate change), sea-level rise,
and coastal flooding; (3) address potential affordability challenges associated with mandatory
purchase requirements and implementation of full actuarial premium rates, beginning in 2014; (4)
reduce the likelihood of future emergency supplemental spending to finance recurring recovery
expenditures by making communities stronger and more resilient; (5) address uncertainty
surrounding human settlement patterns and the NFIP’s ability to contain the nation’s growing
exposure to floods; and (6) explore the creation of effective hazard-reduction strategies—linked
to land use planning techniques (and construction standards)—to direct development and people
out of, and away from, flood-prone areas.
Early in 2012, Congress passed and President Barack Obama signed into law the Biggert-Waters
Flood Insurance Reform Act of 2012, P.L. 112-141. The law reauthorized the NFIP through
September 30, 2017, and made a number of reforms to strengthen the future financial solvency
and administrative efficiency of the NFIP. In the wake of Sandy, Congress might choose to
consider policy options to achieve greater sustainability and cost savings by addressing long-term
flood management challenges. Options include the use of flood policies (10-20 years, rather than
1 year), privatization of flood risk, issuance of community based flood insurance contracts, and
regulatory and tax changes to encourage financial innovation in financing recovery from large-
scale natural disasters.
This report provides an analysis of flood risk management, summarizes major challenges facing
the NFIP, and outlines key reforms enacted in the Flood Insurance Reform Act of 2012. The
report identifies and presents some key remaining flood management issues for congressional
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The National Flood Insurance Program: Status and Remaining Issues for Congress

consideration, and concludes with a discussion of policy options for the future financial
management of flood hazards in the United States.

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The National Flood Insurance Program: Status and Remaining Issues for Congress

Contents
Background ...................................................................................................................................... 1
The Regulatory Flood Management “Fix” ................................................................................ 2
Issues of Contention .................................................................................................................. 2
Recent Developments ...................................................................................................................... 5
The Effect of Hurricane Sandy on the NFIP ............................................................................. 5
Cost and Consequence of Recent Catastrophic Floods ............................................................. 7
The Biggert-Waters Flood Insurance Reform Act of 2012 ........................................................ 8
A Nation Exposed to Flood Risk ..................................................................................................... 9
Economic Regulation and Recovery from Flood Disasters ....................................................... 9
Financial Management of Flood Risk ..................................................................................... 11
Identifying and Mapping Areas of Special Flood Risk ........................................................... 13
Accuracy of Maps ............................................................................................................. 13
Basic Mechanics of Flood Mapping .................................................................................. 13
Flood Risk with Respect to Levees ................................................................................... 13
Funding Flood Hazard Mapping Activities ....................................................................... 14
FEMA’s Risk Maps, Assessment, and Planning (Risk MAP) Program ............................ 14
Financial Status of NFIP ................................................................................................................ 15
Treasury Borrowing ................................................................................................................. 17
Factors Affecting Financial Soundness of the NFIP ................................................................ 19
Premium Subsidies ............................................................................................................ 19
Repetitive Flood Loss Properties ...................................................................................... 20
Low NFIP Program Participation ...................................................................................... 21
Inaccurate Flood Hazard Maps ......................................................................................... 22
Lack of Enforcement of Floodplain Management Regulations ........................................ 23
Coastal Flood Hazard Risk Assessment and Mapping ...................................................... 23
Moral Hazard and Federal Disaster Assistance ................................................................. 24
Remaining Issues for Possible Congressional Oversight ............................................................... 25
Options for Managing and Financing Flood Risk.......................................................................... 27
Long-Term Flood Insurance Contracts .................................................................................... 28
Privatization of Flood Risk ...................................................................................................... 28
Multi-Peril Homeowners Policies Covering the Flood Peril ................................................... 29
Community-Based Flood Insurance Policy Contracts ............................................................. 29
Integrated Watershed-Based Risk Management Strategy ........................................................ 29
Technological Innovation in Financing Large-Scale Natural Disasters .................................. 30
Concluding Observations ............................................................................................................... 31

Figures
Figure 1. Difference Between Total Premiums Written and Total Payments Made to
Policyholders Under the National Flood Insurance Programs: 1978-2011 ................................ 17

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Tables
Table 1. Top 20 Significant Flood Events Covered by
the National Flood Insurance Program ......................................................................................... 6
Table 2. FEMA Flood Mapping Program Funding Levels: FY2011- FY2013 .............................. 14
Table 3. NFIP Program Statistics ................................................................................................... 16
Table 4. History of U.S. Treasury Borrowing Under
the National Flood Insurance Program ....................................................................................... 18
Table 5. Total Repetitive Flood Loss Properties in the NFIP: 1978-2011 ..................................... 21
Table A-1. Repetitive Flood Loss Properties in the National Flood Insurance Program ............... 33

Appendixes
Appendix A. National Flood Insurance Program’s Repetitive Flood Loss Properties ................... 33
Appendix B. Key Provisions in the Biggert-Waters Flood Insurance Reform Act of 2012 .......... 35
Appendix C. Chronology of Public Laws That Reauthorized the National Flood Insurance
Program: 2008-2012 ................................................................................................................... 38

Contacts
Author Contact Information........................................................................................................... 39

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n October 29, 2012, Hurricane Sandy hit the East Coast, flooding some coastal areas and
causing massive economic disruptions in states throughout the Northeast and the mid-
OAtlantic region. Communities in New York, New Jersey, and Connecticut were
particularly hard hit. In the wake of disaster recovery from Hurricane Sandy, policymaker
attention has refocused on the effectiveness of the existing unified national program for
floodplain management in reducing the loss of life and property from weather-related coastal
hazards (hurricanes, storm surges, and tornadoes), aging coastal protection infrastructure and
increasing vulnerability to storm impacts, persistently low insurance participation in the National
Flood Insurance Program (NFIP), and the escalating cost of flooding to taxpayers.
Despite billions spent on preparedness and structural1 and non-structural2 mitigation measures to
reduce disaster-related losses, the nation faces growing exposure to flood-related losses. Some
argue that storms of Sandy’s strength and intensity will occur more frequently, resulting in
increasing incidents of major flooding and damage. This situation raises at least five policy
concerns and questions. First, is federal flood insurance that complements land use management
still a workable method of managing flood risk, reducing the costs and human suffering from
floods, and distributing burdens equitably among those protected by flood insurance and the
general public? Second, is flood risk possible for private insurers to underwrite? Third, could
flood risk be effectively transferred to the private sector through reinsurance or to capital markets
through catastrophe bonds? Fourth, should the NFIP debt to the Treasury be forgiven? Fifth, are
the consequences of flood risks and the level of protection offered by hurricane protection
systems communicated effectively to the public? These are some of the issues of contention that
remain after recently passed NFIP-reform legislation in Congress.
This report provides an analysis of U.S. flood risk management policy, summarizes major
challenges facing the NFIP, and outlines key insurance reform provisions in the Biggert-Waters
Flood Insurance Reform Act of 2012 (Flood Insurance Reform Act of 2012).3 The report also
identifies and presents some key remaining flood management issues of contention for
congressional consideration, and it concludes with a discussion of policy options for the future
financial management of flood hazard costs.
Background
The United States is a geographically diverse nation exposed to hydro-meteorological (weather,
climate, and water-related) perils that each year cause widespread physical and economic damage
and threaten human life and fragile ecosystems. Already the most costly and prevalent natural
disaster risk in the United States, incidents of flooding appear to be increasing.4 The traditional
method of flood hazard mitigation has been to build levees and other flood control structures to
keep water away from population centers and agricultural areas. Beginning in the 1950s and
1960s, with the nation facing higher-than-expected flood losses from weather-related disasters

1 Structural measures (levees, dams, floodwalls, channels modification) are those that change or control flood water
flow to reduce the probability of flooding.
2 Non-structural measures (flood-proofing, acquisition/relocation, and retrofitting structures) focus on floodplain
management and flood warning to reduce risks associated with flooding and moving above and away from flood water.
3 P.L. 112-141; 126 Stat 916.
4 Testimony of Craig Fugate, Administrator of Federal Emergency Management Agency before the Senate Committee
on Banking, Housing, and Urban Affairs, National Flood Insurance Program Reform, June 9, 2011, p. 3.
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and breached levees, policymakers shifted focus from purely structural flood controls toward a
system that included both structural and non-structural risk mitigation strategies.
The Regulatory Flood Management “Fix”
In 1968, Congress established the NFIP as a unified floodplain management strategy to reduce
property losses from flood peril and public spending to compensate disaster victims. Today, the
Department of Homeland Security’s (DHS’s) Federal Emergency Management Agency (FEMA)
administers the program by developing flood hazard maps that are used to set flood insurance
rates, regulate floodplain development, and inform those who live in the “100-year” floodplain of
potential flood hazards.5
FEMA reports that the existing “unified floodplain management strategy” saves the nation an
estimated $1.6 billion annually in avoided flood losses.6 These savings are achieved, for example,
when buildings are constructed in compliance with NFIP building standards.7 However, new
social and economic challenges, such as the growth in population and property values in coastal
areas, have arisen that complicates the existing challenges facing U.S. flood management policy.
These challenges could require congressional oversight and possible regulatory reforms.
Issues of Contention
From a policymaker’s perspective, the fundamental flood management challenge facing the NFIP
is finding the best mix of strategies to reduce the nation’s long-term exposure to flood losses
while ensuring the program’s solvency and statutory mandate to provide affordable flood
insurance to the general public. These two policy objectives raise several broad post-reform
policy questions:
• How can FEMA balance the program’s fiscal soundness and actuarial rates with
the affordability of flood insurance?
• How can the nation reduce the escalating cost of flooding and need for taxpayer-
financed disaster assistance or weather-induced catastrophic floods?
• How to incentivize potentially at-risk property and business owners in coastal
watershed counties or floodplain areas to purchase flood insurance protection
while encouraging state and local governments to make appropriate land use
adjustment to constrict the development of land in high risk flood zones?
• How can the private-sector’s role be expanded in assuming NFIP flood risk?

5 The financial management of flood hazards also involves (1) funding mitigation activities and (2) providing direct
federal disaster assistance to individuals, private businesses, and communities to help rebuild destroyed property,
provide temporary housing to displaced victims, and compensate uninsured victims. These costs are usually financed
through emergency supplemental appropriations or dedicated disaster funds under the Robert T. Stafford Act.
6 Testimony of Craig Fugate, Administrator of Federal Emergency Management Agency before the Senate Committee
on Banking, Housing, and Urban Affairs, National Flood Insurance Program Reform, June 9, 2011, p. 2.
7 Department of Homeland Security, Federal Emergency Management Agency, “National Flood Insurance Fund: Fiscal
Year 2013, Congressional Justification,” at http://www.fema.gov/pdf/about/budget/
11h_fema_nfi_fund_dhs_fy13_cj.pdf.
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Hurricanes Katrina and Rita (2005) and Sandy (2012) illustrate the potential cost and
consequence of the nation’s growing exposure to hurricane-induced coastal flooding and the tens
of billions of tax dollars that would likely be spent on compensating flood victims and coastal
reconstruction in the aftermath of storms. In this context, five issues are worthy of mention.
First, under the current flood risk management regulatory framework, residents who have a
federally backed mortgage and live in a floodplain are required to have insurance against flood.
However, these individuals often do not purchase the mandatory insurance coverage. Estimates
are that only 15% to 25% of at-risk properties in Special Flood Hazard Areas (SFHA) in the
Northeast were insured for flood losses.8 Only 38,785 residential and business policies were in
force in New York City, out of an estimated 7.2 million households (2010 census), as of August
31, 2012; and only 8,129 households (out of about 39,000 households) and businesses in Atlantic
City, NJ, had federal flood insurance coverage.9 Nationally, recent reports suggested that only
18% of Americans in flood zone areas have flood insurance, which raised the possibility of high
uninsured flood-related losses.10 The transition toward full-actuarial rates could create an
increasing financial burden on federal taxpayers who often fund emergency supplemental
appropriations for disaster relief assistance.
Second, individuals tend to misunderstand flood risk, thinking that after a 100-year flood occurs,
they are safe for another 100 years. Behavioral scientists have noted that many individuals in
flood-prone areas often dismiss low-probability catastrophic events, misunderstand the risk-
spreading function of insurance, and tend to be optimistic regarding the prospects of damage to
their property.11 The reality is that a 100-year flood only refers to a probability and that multiple
“100-year” floods could occur in a row.12 Some disaster experts believe a better way of portraying
flood risk would be to refer to the 100-year flood in probabilistic terms as the “1% annual chance
flood.”
Third, NFIP insurance rates might not adequately reflect the actual flood risk. There is some
anecdotal evidence which suggests that if property owners had to incur more of the cost of
locating in flood-prone areas, they would make more efficient location decisions. One recent
study suggested that NFIP’s current rates are about a third of the true market-risk cost of flood
insurance.13 Congress established the NFIP with the statutory mandate that coverage be widely
available and affordable. Rates are affordable because, unlike private insurers who are subject to
state insurance regulatory requirements, the federal flood insurance program does not buy
reinsurance or have to set rates to cover the cost of capital, taxes, and contingent reserves. The
federal government serves as a direct primary insurer of last resort, diversifying (spreading) flood
risk geographically through the mandatory purchase requirement and over time with the
program’s authorization to borrow from the Treasury.

8 Anita Lee, “Sandy Catches Northeasterners without Flood Coverage,” The Sun Herald, November, 2, 2012, at
http://www.weather.com/news/sandy-northeasterners-no-insurance-201211.
9 Ibid.
10 Susan Stellin, “Reconsidering Flood Insurance,” The New York Times, November 8, 2012, at
http://www.nytimes.com/2012/11/11/realestate/reconsidering-flood-insurance-after-hurrican-sandy.html?pagewanted=
all&_r=0.
11 See Howard Kunreuther and Paul Slovic, “Economics, Psychology, and Protective Behavior,” The American
Economic Review, vol. 68(2); 1978, p. 64-69.
12 R.A. Pielke, “Nine Fallacies of Floods,” Climatic Change, vol. 42(2), 1999, p. 413-438.
13 Property Casualty Insurers Association of America, “True Market-Risk Rates for Flood Insurance,” June 2011, at
http://www.pciaa.net/web/sitehome.nsf/lcpublic/304/$file/NFIP_White_Paper_June2011.pdf.
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Separately, FEMA’s new digital flood maps might not meet certain flood hazard data quality
standards.14 For example, the maps do not adequately delineate areas of storm water and
groundwater flooding or capture increases in localized storm water runoff flooding resulting from
development, deforestation, and other land use changes.
FEMA has indicated it recognizes this challenge and has undertaken many changes in its flood
map assessment and mapping standards to accurately reflect risk on flood maps, but more
changes might be needed.15 A potential reform could be to adopt a different regulatory standard of
protection, such as the 1-in-250-year or 1-in-500-year flood events, and to replace FEMA flood
maps with those that contain high-accuracy and high-resolution land surface elevation data.
Adopting accurate flood maps that require new or sharply higher insurance premiums associated
with greater risk exposure could cause unintended consequences that would require congressional
oversight to ensure households and businesses are able to comply with the regulatory changes.
Policymakers will likely be called upon to balance the presumed tradeoffs between keeping
insurance affordable and widely available, as it has been since the NFIP’s inception, and the
regulatory changes needed to ensure the long-term financial viability of the NFIP. Driving debate
surrounding this tradeoff is the reality of the large and growing segment of the U.S. population
subject to the 1% annual chance coastal flood hazard16 and the increasing frequency and severity
of hurricane-induced floods.
Fourth, the increasing public cost of post-disaster recovery financing is another issue of
contention that may merit future congressional oversight. Rebuilding of infrastructure like roads,
bridges, and utilities in disaster-prone areas in the aftermath of Hurricane Sandy is expected to
cost taxpayers tens of billions of dollars, but an exact figure is still not known. Some experts have
expressed concerns about taxpayer-financed rebuilding that duplicates the vulnerability that
existed before Hurricane Sandy. The policy challenge may be to identify those disaster-prone
areas that it no longer makes sense to rebuild (in light of future coastal hazards) and to develop a
culture of building construction that reduces the nation’s increasing flood risk vulnerability.
A related issue of contention is the notion that many at-risk property owners do not think flood
insurance is a good investment or opt to finance post-disaster reconstruction with federal-disaster
assistance, albeit insurance is generally considered the most effective way to finance post-disaster
recovery. The Flood Insurance Reform Act of 2012, P.L. 112-141, includes a provision to raise
historically low premiums and reduce homeowners’ incentives for rebuilding in flood risk zones.

14 The National Academy of Science, “Mapping the Zone: Improving Flood Map Accuracy,” 2009, at
http://www.nap.edu/openbook.php?record_id=12573&page=13.
15 FEMA, for example, shifted focus to coastal hazard mapping with its Risk MAP 2010-2014 Multi-Year Plan, March
2009, built on the Flood Map Modernization program. Risk MAP is an integrated flood risk management approach that
weaves NFIP flood hazard data into watershed-based risk assessments that serve as the basis for local hazard mitigation
plans and support community actions to reduce risk. As part of Risk MAP, FEMA has provided to communities New,
Validated or Updated Engineering (NVUE) data for 54% of the miles mapped in the NFIP flood hazard inventory.
16 FEMA estimated that about 8.7 million people or 3% of the U.S. population (based on the 2000 U.S. Census) live in
Coastal AE Zones and VE Zones (i.e., areas subject to the 1% annual chance coastal flood hazard). See An Estimate of
the U.S. Population Subject to the One-Percent Annual Chance (100-year) Coastal Flood Hazard by Mark Crowell and
Kevin Coulton, Proceedings of Coastal Zone 09, Boston, Mass., July 19, 2009, at http://www.csc.noaa.gov/cz/
CZ09_Proceedings/Abstract%20PDFs/Oral.Crowell.pdf. A 2010 power point presentation of this study is found at
http://www.norfma.org/conference/2010/090810_conf/090810/estimate_us_cooling.pdf.
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Some critics point out that the costs—financial risk and ecological damage—are widely
distributed to taxpayers across the country and the benefits, by contrast, are disproportionately
enjoyed by wealthy counties and by owners of vacation homes.17 However, not all beneficiaries
of the NFIP are wealthy, and primary homes are also affected by the NFIP.
Fifth, hazard mitigation is considered an important element in reducing flood losses, but it is not
always incorporated in risk management decision making at all levels of the government and in
the private sector. For example, while local community officials might understand that for every
hazard mitigation dollar spent five dollars are saved, the reality is that restrictive land-use zoning
regulations and building requirements are not always enforced when such actions conflict with
local plans for economic development. Moreover, the cost-sharing mitigation funding
requirements on property buy-outs and relocation of at-risk properties and restoration of
floodplains that provide benefits beyond flood control could be a financial burden for many local
communities across the country already facing difficult budgetary choices. Many of these
communities might also lack adequate financing to repair locally owned flood levee systems and,
therefore, might not have them certified by the government as providing adequate protection
against the 1% annual chance flood.18 Without FEMA levee (or USACE) accreditation, the area
behind the levee is mapped into a mandatory flood insurance purchase area.
Recent Developments
The Effect of Hurricane Sandy on the NFIP
On October 29, 2012, Hurricane Sandy struck the East Coast, causing massive floodwater
inundation and economic disruptions in states throughout the Northeast and the mid-Atlantic
region.19 Given the geographic scope of heavily flooded areas and residential take-up rates
(number of flood policies divided by an estimate of total households) in affected coastal
communities that participate in the NFIP, government payouts under the NFIP are estimated to be
from $12 billion to $15 billion in flood claims. At that time, the projected amount exceeded the
$4 billion in cash and remaining borrowing authority from the Treasury Department for the
program. By January 2013, the NFIP had processed more than 140,000 flood claims totaling
about $1.7 billion.
Table 1 provides a list of the top 20 flood events in the United States in terms of NFIP payouts.
With expected insured flood losses of $12 billion to $15 billion, Sandy could become the second-
largest flood disaster for the NFIP behind Hurricane Katrina, which was a pivotal event in the
history of federal flood-control policy. Beginning with Hurricanes Katrina and Rita in 2005, and
continuing through Hurricane Irene and Tropical Storm Lee in 2011 and Hurricane Sandy in
2012, public awareness has been focused on the destructive impacts of hurricane-induced coastal
flooding.

17 See J. Scott Holladay and Jason A. Schwartz, “Flooding the Market: The Distributional Consequences of the NFIP,”
New York University School of Law, Institute for Policy Integrity, April 2010, at http://policyintegrity.org/documents/
Floodingthemarket.pdf.
18 See CRS Report R41752, Locally Operated Levees: Issues and Federal Programs, by Natalie Keegan et al.
19 The states affected by Hurricane Sandy include Connecticut, Delaware, District of Columbia, Maine, Maryland,
Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Virginia,
and West Virginia.
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Table 1. Top 20 Significant Flood Events Covered by
the National Flood Insurance Program
(1978-November 30, 2012; $ nominal)
Number of
Average
Rank Event
Date
Paid Losses
Amount Paid
Paid Loss
1
Hurricane Katrina
Aug. 2005
167,671
$16,264,188,476
$97,001
2
Hurricane Ike
Sept. 2008
46,412
2,664,167,040
57,391
3
Hurricane Ivan
Sept. 2004
27,658
1,590,436,206
57,504
4
Hurricane Irene
Aug. 2011
43,848
1,302,111,631
29,696
5
Tropical Storm Allison
June 2001
30,663
1,103,877,235
36,000
6
Louisiana Flood
May 1995
31,343
585,071,593
18,667
7
Hurricane Isabel
Sept. 2003
19,869
493,452,308
24,835
8
Hurricane Rita
Sept. 2005
9,517
472,774,099
49,677
9
Hurricane Floyd
Sept. 1999
20,437
462,252,753
22,618
10
Tropical Storm Lee
Sept. 2011
9,748
442,259,918
45,369
11
Hurricane Opal
Oct. 1995
10,343
405,527,543
39,208
12
Tropical Storm Isaac
Aug. 2012
10,126
407,251,178
40,218
13
Hurricane Hugo
Sept. 1989
12,840
376,433,739
29,317
14
Hurricane Wilma
Oct. 2005
9,614
365,030,822
37,975
15 Nor’Easter
Dec.
1992
25,142
346,150,356
13,768
16 Midwest
Flood
June
1993
10,472
272,819,515
26,052
17
PA, NJ, NY Floods
June 2006
6,423
228,743,070
35,613
18
Torrential Rain – TN
Apr. 2010
4,108
228,248,545
55,562
19 Nor’Easter
Apr.
2007
8,636
225,657,504
26,130
20
Hurricane Fran
Sept. 1996
10,315
217,843,972
21,119
Source: U.S. Department of Homeland Security, Federal Emergency Management Agency, Significant Flood Events
as of November 30, 2012, located at http://www.fema.gov/policy-claim-statistics-flood-insurance/policy-claim-
statistics-flood-insurance/policy-claim-13-9.
On December 7, 2012, the Office of Management and Budget (OMB) submitted to Congress a
request for a FY2013 supplemental budget appropriation for an additional $60.4 billion to
respond to the impacts of Hurricane Sandy in all affected states. The OMB supplemental budget
appropriation request included an additional $9.7 billion in NFIP borrowing authority. On January
4, 2013, Congress passed, and President signed into law, H.R. 41 to provide a $9.7 billion
increase in the NFIP’s borrowing authority (from $20.725 billion to $30.425 billion) to pay flood
claims related to Hurricane Sandy. The law was considered the first step toward providing
supplemental disaster relief to flood victims affected by Sandy.
On January 15, 2013, the House approved the Disaster Relief Appropriations Act of 2013, H.R.
152, to provide $17 billion to fund FEMA’s Disaster Relief Fund, the Transportation
Department’s Federal Transit Authority Emergency Relief Program, and the Community
Development Block Grant program. The House also agreed to an amendment to H.R. 152 that
provided an additional $33.4 billion in disaster funding for various long-term recovery and
rebuilding efforts. On January 29, 2013, President Barack Obama signed into law H.R. 152.
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Passage of the emergency disaster relief supplemental legislation (H.R. 152, as amended)
combined with the enacted flood insurance bill (H.R. 41) totaled the $60.4 billion in Sandy relief
requested by the Administration.
Cost and Consequence of Recent Catastrophic Floods
Hurricanes Katrina and Rita in 2005 caused approximately $200 billion in economic losses, of
which $21.9 billion related to insurance claims under the NFIP. Katrina financially overwhelmed
the program. Then, in 2008, the Atlantic hurricane season was among the costliest on record for
flood losses. Hurricane Ike alone caused about $2.7 billion in NFIP claims in coastal areas of
Texas and Louisiana and further inland, including many areas not typically subject to tropical rain
events. Extensive 500-year floods affected more than 11 million people in nine Midwestern states
as major rivers in Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, and
Wisconsin overflowed their banks and levees. Especially hard hit states were Iowa, Indiana, and
Illinois, where the river levels surpassed levels reached in the Great Flood of 1993.
FEMA has the responsibility to identify areas of special flood, mudslide, or flood-related erosion
hazards within communities; complete a Flood Insurance Study (FIS); and issue a Flood
Insurance Risk Map (FIRM) showing the applicable risk premium rate zones. In the aftermath of
Hurricane Katrina, FEMA focused on properly identifying properties facing residual risk behind
levees and providing residents with adequate risk-based coverage. To ensure that FIRMs
accurately reflected current flood hazards, particularly weather-related coastal hazards, FEMA
began a nationwide FIS designed to remap the nation’s floodplain. The FIS required FEMA to
certify all levees appearing on FIRMs as meeting the 100-year protection regulatory standard.
FEMA was able to produce digital flood hazard data for more than 88% of the nation’s population
and produce accurate flood hazard maps that reflected current flood hazards.
But the issuance of new or revised FIRMs posed a challenge for many families and communities
remapped into Special Flood Hazard Areas (SFHA). This situation prompted widespread criticism
about the accuracy of the underlying flood hazard engineering data and scientific methodology
used in developing the FIRMs. During congressional debate that led to the passage of the Flood
Insurance Reform Act of 2012, individual property and business owners, local officials, and some
Members of Congress representing areas remapped into a SFHA raised concerns about the
accuracy of the maps and affordability of coverage, and they sought to delay or avoid the
implementation of the new or revised flood maps, in many cases making it easier to ignore flood
risk.
Efforts made to stall implementation of new or revised flood maps and mandatory purchase
requirements reflected the political and regulatory environment in 2011. Hurricane Irene and
Tropical Storm Lee struck the Northeast and the nation experienced higher-than-normal rainfall
and flooding in states along the lower Mississippi River Valley and the upper Midwest adjacent to
the Missouri River not seen since the 1930s.20 According to the National Oceanic and
Atmospheric Administration’s National Weather Service (NWS), there were 12 weather events
that each caused at least $1 billion in damage.21 Direct flood damages in 2011 totaled $8.41

20 These states include Arkansas, Illinois, Kentucky, Louisiana, Mississippi, Missouri, and Tennessee.
21 National Oceanic and Atmospheric Administration, National Weather Service, “United States Flood Loss Report –
Water Year 2011,” at http://www.nws.noaa.gov/hic/summaries/WY2011.pdf.
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billion.22 To put this amount in context, flood damages in 2011 were 108% of the 30-year average
(1980-2010) of $7.82 billion (adjusted for inflation).23
The devastating flood damage following Hurricane Katrina in 2005, Midwest floods in 2008 and
2011, and Hurricane Ike in 2008 prompted legislative efforts in Congress to reform and
reauthorize the NFIP and transition the program toward a more resilient, sustainable, and
comprehensive approach to flood management.
The Biggert-Waters Flood Insurance Reform Act of 2012
After almost four years of debate, Congress passed and President Barrack Obama signed into law,
on July 6, 2012, the Biggert-Waters Flood Insurance Reform Act of 2012, P.L. 112-141, which
reauthorized the NFIP through September 30, 2017. The law made a number of reforms to
strengthen the future financial solvency and administrative efficiency of the program by raising
historically low premiums and reducing homeowners’ incentives for rebuilding in flood risk
zones. See Appendix B for a summary of the major provisions of this law.
In brief, several post-reform issues of contention remain for possible congressional consideration.
• Revised Analysis and Mapping of Non-Accredited Levees. FEMA has agreed
to assess and map residual risk (levee protection) below the 100-year standard
that would give communities “credit” for levees that provide a level of protection
less than the 100-year regulatory protection standard. There are inherent
complexities and technical challenges in determining levee-specific risk
(probabilities of flooding at a particular point in a levee) and establishing a
corresponding risk premium.
• Actuarial Soundness, Program Solvency, and Affordability. Insurance
premium adjustments designed to strengthen the financial solvency of the NFIP
could have an unintended consequence of property owners having to drop their
policies because the premiums are not affordable. Public debate on the
affordability issue will likely focus on the cost effectiveness and feasibility of
implementing means-tested insurance premium increases that preserve some
level of subsidization for low-income households.
• Debt Forgiveness. FEMA is currently obligated to repay about $17.5 billion
owed to the Treasury Department from having to issue notes and other debt
obligations to pay claims from Hurricane Katrina in 2005. Many insurance
analysts believe FEMA will not be able to repay the current debt in the next 10
years.
• Development of an Integrated Disaster Risk Management Approach. Given
the similarity in coastal and riverine hazard risks and water resources
management challenges facing the nation, Congress may wish to consider
options for a comprehensive integrated watershed management framework of
risk perception, risk management, and disaster strategy that go beyond floodplain
development management.

22 Ibid.
23 Ibid.
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• Private-Sector Role in Financing Flood Risk. Is it feasible to expand the role
of the private sector in assuming a portion of the NFIP’s flood risk? Will private
reinsurance companies be willing to assume primary insurer’s flood risk and
transfer it to the capital markets through alternative risk financing instruments?
A Nation Exposed to Flood Risk
Historically, flooding along river banks has been a major national public policy issue for which
the government has played a substantial role as an insurer of last resort and a provider of disaster
assistance to flood victims and communities. FEMA spends an average of $4.3 billion each year
responding to a wide range of disasters.24 These funds, which are intended to address immediate
and longer-term impacts of disasters on individuals and communities, are in addition to the funds
spent each year on compensation for flood victims for uninsured losses and mitigating future
flood losses under the NFIP.
Statistical data from FEMA, the National Oceanic and Atmosphere Administration (NOAA), and
private organizations suggest an increasing frequency of catastrophic flood events linked to
extreme weather and climatic events like hurricanes, storm surge, or tornadoes. The nation
arguably continues to face increasing exposure to flood risks as evidenced by the fact that floods
that would historically occur once every 20 years are now projected to happen every 4 to 6
years.25 Urban populations and property assets and public infrastructure appear to be more
vulnerable to coastal flood hazards and levee flood hazards. Concerns have been raised that more
than half of the U.S. population now lives in coastal watershed counties or floodplain areas and
approximately 50% of the nation’s gross domestic product is generated in Gulf and Atlantic
coastal areas.26 One estimate from Lloyds of London and Risk Management Solutions (RMS)
predicts that flood losses along the Gulf and Atlantic coastlines would increase 80% by 2030 with
a one-foot rise in the sea level.27
Economic Regulation and Recovery from Flood Disasters
Congress has a responsibility through the “general welfare” and “interstate commerce” clauses of
the U.S. Constitution to promote national economic growth. One factor affecting the nation’s
economic well-being is the proper functioning of markets for natural disaster risk. In deciding
whether to intervene in private insurance markets, policymakers typically ask several questions:
Do economic markets provide a sufficient amount of insurance against flood hazards? To the
extent that flood insurance exists, are the insuring firms sufficiently capitalized so that

24 American Academy of Actuaries, “The National Flood Insurance Program: Past, Present ... and Future?, July 2011, at
http://www.actuary.org/pdf/casualty/AcademyFloodInsurance_Monograph_110715.pdf.
25 National Science and Technology Council, Climate Change Science Program and the Subcommittee on Global
Change Research, Weather and Climate Extremes in a Changing Climate - Regions of Focus: North America, Hawaii,
Caribbean, and U.S. Pacific Islands, June 2008, at http://www.climatescience.gov/Library/sap/sap3-3/final-report/
sap3-3-final-all.pdf.
26 U.S. Commission on Ocean Policy, “An Ocean Blueprint for the 21st Century,” September 2004, at
http://oceancommission.gov/documents/full_color_rpt/000_ocean_full_report.pdf.
27 Lloyds of London and Risk Management Solutions, Coastal Communities and Climate Change: Maintaining
Insurability, 2008, at http://www.lloyds.com/NR/rdonlyres/38782611-5ED3-4FDC-85A4-5DEAA88A2DA0/0/
FINAL360climatechangereport.pdf.
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widespread insolvency would not occur? Would federal disaster insurance crowd out private
insurers and reinsurers and create unintended federal liabilities for taxpayers? Would insurers
engage in “cherry-picking” the most appealing risks and leave the “less appealing” risk to the
federal government?
The U.S. government has at times regulated private economic activity for the purpose of
promoting economic recovery and protecting or supporting particular economic groups. For
example, economic uncertainty stemming from widespread flooding in the mid-1960s, the need
for economic relief and recovery for flood victims, and calls for a reduction in the financial
burden on taxpayers led to economic regulation of the nation’s floodplains and insurance markets.
On September 9, 1965, Hurricane Betsy, a Category 3 hurricane, hit the Louisiana coast, causing
Lake Pontchartrain to overflow its banks and resulting in widespread flooding. Betsy was the first
natural disaster to generate more than $1 billion in damages. At the time, there was little flood
insurance because private insurers were unwilling to offer protection to offset flood losses. In
response, Congress created the NFIP in 1968 as a quid pro quo program that would regulate the
nation’s floodplains with land-use controls and building requirements that communities located in
SFHA must adopt and enforce for property owners to be eligible for insurance under the program.
Under the NFIP, the government became a de facto regulator of certain economic activity in
flood-prone areas. In the absence of a sufficient supply of insurance to meet societal demand, the
government took action to safeguard the economic interests of consumers, private businesses,
communities, and taxpayers. Economic regulation was accomplished in two ways. First, the
government acted to address the cost and consequences of risky economic activity in flood-prone
areas. Depending on whether a building is located in a government-designated SFHA, flood
insurance may be required as a condition of obtaining a federally secured mortgage loan.
Homeowners typically discover they need flood insurance during the home-buying process,
which normally includes a disclosure of where the property is located relative to the SFHA that is
mapped on a FIRM.28
Second, economic regulation was accomplished through “managerial regulation,” with the
government providing subsidized flood insurance for individuals and private businesses in
communities that undertook specific steps to regulate the floodplain through land-use zoning
ordinances and building standards.29 The government later made the purchase of flood insurance
mandatory for federally insured mortgages.
In general, there were four broad underlying causes for economic regulation—government
intervention—in the market for flood insurance in the 1960s. First, people insisted that social and
ethical values as well as economic values should be reflected in the operation of the economy.
Persons suffering economic distress or dislocation from flood hazards sought and received
governmental aid in dealing with their problem. The aid was in the form of disaster relief
assistance, subsidized flood insurance, and government spending on flood risk identification and
mapping.

28 Properties not financed by federally insured or guaranteed mortgages usually fall outside of the NFIP’s insurance
regulatory framework. Although there is no requirement to purchase flood insurance to protect the property as
collateral, the property owner might be subject to land-use development and zoning and construction ordinances.
29 James Anderson, “Economic Regulation,” Encyclopedia of Policy Studies, Stuart S. Nagel, ed. (New York: Dekker
Publishers), 1994, p. 404.
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Second, government action was viewed as being necessary to more efficiently coordinate and use
resources. Economic regulatory programs were thought to be needed to prescribe certain land-use
zoning ordinances and building-code standards to govern economic or business behavior to
reduce the physical and economic risks associated with coastal hazards.
Third, as the nation experienced widespread flooding in the 1960s, people became interested in
shifting some of the risk from themselves to government. In response, policymakers changed the
way economic risk of flooding was defined and the means of achieving security for the
individual. Disasters, whether man-made or natural, were initially considered inevitable or “acts
of God” but came to be viewed as public problems that required government action to protect
individuals, businesses, communities, and taxpayers. Government assistance in the form of
subsidized insurance premiums was viewed as a solution to reduce the future costs and risks of
investing in flood-prone areas.
Premium subsidies were initially considered necessary because residents in flood-prone areas
often did not understand the flood risk when they built in floodplains (flood maps were not
available), there were no public safeguards restricting construction on the floodplain, and
premium subsidies on pre-FIRM structures could provide an incentive for local communities to
participate in the program and discourage unwise future floodplains construction. Premium
subsidies were intended to be phased out over time as the number of pre-FIRM properties
gradually diminished when they were damaged and rebuilt or relocated under stronger floodplain
management and building codes.
Fourth, sole reliance on insurance markets for flood risks was not an option. This situation
provided a rationale for possible government intervention in the economy to ensure that the costs
of living in flood-prone areas were not ignored. Individuals and insurers at risk of flooding,
however, have in the past lacked the information necessary for the market system to operate
effectively. Insurers did not always have flood hazard maps, as they do now, and thus had no
reliable, consistent, and cost-effective way to identify and assess flood risk. Homeowners did not
(and sometimes still do not) have the information needed to make rational economic decisions
about real estate investments. All of this resulted in a misallocation of resources that required and
still arguably requires government intervention to protect the public interest.
Financial Management of Flood Risk
Flood hazards are deemed commercially uninsurable in the private-insurance market given that
only those most exposed to loss tend to purchase coverage, the possibility of catastrophic losses,
and concerns about the insurer’s ability to correctly price the contracts of insurance because of
limitations in hazard assessment. Traditional insurance principles indicate that financial
intermediation through insurance contracts tends to work best when the insurer is able to gather a
large enough pool of independent risks to allow the actuarial technique of “law of large numbers”
to diversify the risk. Because the nature of flood risk is that many property owners simultaneously
face the same flood hazard when the event occurs, their risks tend to be highly correlated—not
independent. Correlated risk means the insurer must charge higher premiums to reflect a larger
risk load or administrative costs that account for the uncertainty faced by the insurer in predicting
future losses of the pool. The premium level that private insurers needed to adequately underwrite
flood hazards would be so high that few would be willing to purchase coverage.
The NFIP was a public-policy response to the flood peril and escalating costs of taxpayer-funded
disaster relief for flood victims. Government mapping of areas prone to flooding, subsidized
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flood insurance, and floodplain management regulations were key to the program’s structure and
function.30 Federally backed flood insurance was made available to homeowners and businesses
in communities that voluntarily agreed to adopt and enforce floodplain management ordinances
designed to reduce flood-related property losses. The creation of the NFIP marked a significant
shift in U.S. flood control policy. The shift was away from a “levee-only” flood reduction
approach toward a risk identification, risk financing, and floodplain management approach that
was intended to foster individual responsibility and build local self-sufficiency in terms of land-
use zoning ordinances and construction standards.
Federal flood insurance was considered to be an economically efficient way to indemnify flood
victims and to have them internalize some of the risk of locating property in the floodplains.31
The federal government would use its capacity to spread losses over time with the NFIP’s ability
to borrow money from the U.S. Treasury to offset program deficits. A federal government
insurance program, it was thought, could also link the availability of flood insurance to land-use
regulation and building codes that would, in theory, reduce long-term flood risk.
The NFIP has undergone major changes largely in response to significant flood events over the
years. As an illustration, the program was created after Hurricane Betsy devastated the Gulf Coast
in 1965. After Hurricane Agnes in 1972, recognizing the low market penetration of flood
insurance, Congress passed the Flood Disaster Protection Act of 197332 to establish a mandatory
flood insurance purchase requirement for structures located in identified SFHAs. After the 1973
act, federally regulated lenders were obligated to require flood insurance on any loan secured by
improved real estate in a FEMA-designated SFHA in a participating community. After the
Midwest floods of 1993, it became increasingly apparent to Congress that homeowners were still
not adequately complying with the mandatory insurance purchase requirement. The flood
provided the impetus for strengthening lender compliance through the mandatory purchase
provisions in the 1994 National Flood Insurance Reform Act.33 Recognition of the impact of
properties prone to repetitive flooding on the financial condition of the program led to the passage
of the Flood Insurance Reform Act of 2004,34 which established a pilot program for the mitigation
of severe-repetitive-loss properties (SRLPs) and the funding of mitigation activities for individual
SRLPs.
After the 2008 and 2011 catastrophic floods, Congress focused attention on long-term reforms
and reauthorization of the NFIP to ensure the financial viability of the program, ensure continued
comprehensive coverage for all property in floodplains, and explore a private-sector role in
financing flood risks. These efforts led to the passage of the Flood Insurance Reform Act of 2012.

30 42 U.S.C. § 4001(a); § 4012(a)-(b).
31 Dan R. Anderson, “The National Flood Insurance Program: Problem and Potential,” The Journal of Risk and
Insurance, 1974, vol.16 (4), p. 579-599.
32 P.L. 93-234, 87 Stat. 975.
33 P.L. 103-325, 108 Stat. 2255.
34 P.L. 108-264, 118 Stat. 712.
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Identifying and Mapping Areas of Special Flood Risk
Accurate flood maps with the latest engineering and flood modeling digital mapping technologies
help to reduce future flood losses and ensure that rates reflect actual risk, which, in turn, promotes
the fiscal soundness of the NFIP.
Accuracy of Maps
Flood maps could become outdated and inaccurate when they fail to reflect floodplain and
wetland altered by watershed development that destroys the natural system that contains
flooding.35 The altering of rivers and streams by construction of dams, levees, and other flood-
control structures arguably increased the risk of inland floods and development throughout the
affected floodplains. Similarly, the construction of roads and buildings creates impermeable
surfaces that reduce the natural environment’s ability to absorb or delay water flows and changes
in drainage patterns—a situation that could increase flood risk in the affected area. Flood maps
might not adequately consider coastal-flood hazards, such as cumulative shoreline erosion or the
loss of wetland, which serves as a natural buffer to storm surge and reduces downstream flooding
in inland areas.36
Basic Mechanics of Flood Mapping
A typical Flood Insurance Study (FIS) begins with modeling of rainfall and storm tide records for
the local areas. The data are then simulated to determine the likely discharge that could result
from storms of various probabilities. These discharge data are applied to a cross section of the
floodplain to estimate flood depths at various locations. Once FEMA determines water surface
elevation data in various areas in the community, the next steps are to calculate the depth of
flooding for buildings in the area and calculate the dollar damages using a vulnerability function
(state-damage curve) derived from past flood events.37 The Base Flood Elevation (BFE) of the
first floor of the structure relative to the flood depth on the floodplain determines property-
specific flood risk data to guide construction and insurance decisions. FEMA used these flood
hazard data to create FIRMs that delineate areas determined to have a 1% chance of flood in any
given year (the “100-year floodplain”). The 1%-annual-chance flood is a flood insurance
standard, not a public safety standard.
Flood Risk with Respect to Levees
The Flood Insurance Reform Act of 2012 requires FEMA to develop risk models, flood zones,
and insurance rates that account for several typical non-accredited levee scenarios. This

35 Before FEMA began its map modernization programs, many FIRMs were 20 to 25 years old and did not accurately
reflect residual risk behind or below flood control structures, giving residents living behind them a false sense of
security.
36 FEMA designates flood-risk zones on a flood insurance rate according to risk level. The codes are Zones A, AO, A1-
A30, AE, AR, AR/AO, AR/A1-A30, AR/AE, AR/AH, AR/A99, A99, AH, VO, V1-V30, VE, and V. These zones are
highly susceptible to flooding and, therefore, subject to mandatory flood insurance purchase requirements. V-lettered
zones are also subject to wave action. Older maps use Zones B and C to represent areas of moderate- and low-flood
risk. Newer maps have replaced these designations with Zone X (shaded) and Zone X (unshaded), respectively.
37 A stage-damage curve is an estimate of damages as a percentage of value based on the depth of flooding experience.
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regulatory reform stems in part from the consequences of the breaching of the levee system
protecting the city of New Orleans in 2005 and the massive flood inundation it caused, which led
to the most costly flood event in the history of the NFIP. Residents in the SFHA had to purchase
flood insurance if they had a federally insured mortgage. FEMA assumed the levee system would
prevent the flow of water on the landward side of the levee during the 1%-annual-chance flood
event and, therefore, did not adequately price the risk of levee failure or overtopping. FEMA
assumes non-accredited levees do not meet the federal standard for reducing the risk associated
with a major flood and, therefore, prices this risk.
Funding Flood Hazard Mapping Activities
Table 2 shows recent funding levels for FEMA’s flood mapping program. In 2003, FEMA began
the Flood Map Modernization (Map Mod) program to update the nation’s inventory of FIRMs to
digital FIRMs (DFIRMs) for areas of the United States with the greatest flood risk. Map Mod
provided updated DFIRMs for more than 92% of the U.S. population.
Table 2. FEMA Flood Mapping Program Funding Levels: FY2011- FY2013
($ in thousands)
Program
FY2011(Enacted)
FY2012 (Enacted)
FY2013 Pres. Budget
Flood Hazard Mapping & Risk
$204,131 $97,712 $89,329
Analysis, Risk Map
National Flood Insurance Fund,
$113,509 $117,706 $116,000
FIF, Flood Studies & Surveys
Total
$317,640 $215,418 $205,329
Source: U.S. Department of Homeland Security, FEMA’s Office of Legislative Affairs.
FEMA’s Risk Maps, Assessment, and Planning (Risk MAP) Program
The Map Mod program successfully developed and delivered a new digital platform that has
enabled FEMA to make flood hazard data more widely available while providing opportunities to
focus on enhancing data accuracy and resolution issues. Other technologies were also developed
to provide opportunities to focus efforts on raising risk awareness and building a risk
management framework to achieve sustainable actions to reduce and better manage flood risks
going forward.
In 2009, FEMA’s Map Mod program became the Risk Mapping, Assessment, and Planning (Risk
MAP) program that builds on flood hazard data and maps produced during the Map Mod
program.38 Risk MAP is an integrated flood risk management approach that weaves NFIP flood
hazard data into watershed-based risk assessments that serve as the basis for local hazard
mitigation plans and support community actions to reduce risk.
Under the Risk MAP program, FEMA initiated projects for 37% of the U.S. population through
FY2011 and anticipated increasing that number to 43% by the end of FY2012. In addition, FEMA

38 See Department of Homeland Security, Federal Emergency Management Agency, “Risk MAP 2010-2014 Multi-
Year Plan,” at http://www.fema.gov/library/viewRecord.do?id=3587.
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had also anticipated providing to communities New, Validated or Updated Engineering (NVUE)
data for 54% of the miles mapped under the NFIP. By the end of FY2012, FEMA had initiated
studies to cover approximately 61% of the miles mapped. FEMA continues to update the nation’s
coastal-flood hazard studies.
Financial Status of NFIP
This section examines the current financial status of NFIP, including borrowing from the
U.S. Treasury and remaining financial issues for Congress.
Table 3 shows that the NFIP currently has about 5.6 million policies in force nationwide covering
approximately $1.3 trillion in property. The NFIP has almost 20,000 participating communities,
and policyholders paid $3.48 billion in premiums in 2011. The NFIP experienced 6 catastrophic
loss years—defined as payouts of $1 billion or more—in its 44-year history that severely tested
the financial resiliency of the program. These years include 1995, 2001, 2004, 2005, 2008, and
2011.
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Table 3. NFIP Program Statistics
(as of December 31, 2011; $ nominal)
Number of
Total
Total Payments
Policies in
Total Written
Total Face Value
Number of
Made to
Calendar Year
Force
Premium
of Coverage
Claims Paid
Policyholders
1972-1977 NA
NA
NA
4,441
$18,035,658
1978 1,446,354
$111,250,585
$50,500,956,000
29,122
$147,719,253
1979 1,843,441
$141,535,832
$74,375,240,000
70,613
$483,281,219
1980 2,103,851
$159,009,583
$99,259,942,000
41,918
$230,414,295
1981 1,915,065
$256,798,488
$102,059,859,000
23,261
$127,118,031
1982 1,900,544
$354,842,356
$107,296,802,000
32,831
$198,295,820
1983 1,981,122
$384,225,425
$117,834,255,000
51,584
$439,454,937
1984 1,926,388
$420,530,032
$124,421,281,000
27,688
$254,642,874
1985 2,016,785
$452,466,332
$139,948,260,000
38,676
$368,238,794
1986 2,119,039
$518,226,957
$155,717,168,000
13,789
$126,384,695
1987 2,115,183
$566,391,536
$165,053,402,000
13,400
$105,432,378
1988 2,149,153
$589,453,163
$175,764,175,000
7,758
$51,022,523
1989 2,292,947
$632,204,396
$265,218,590,000
36,245
$661,658,285
1990 2,477,861
$672,791,834
$213,588,265,000
14,766
$167,896,816
1991 2,532,713
$737,078,033
$223,098,548,000
28,549
$353,681,702
1992 2,623,406
$800,973,357
$236,844,980,000
44,650
$710,225,154
1993 2,828,558
$890,425,274
$267,870,761,000
36,044
$659,059,461
1994 3,040,198
$1,003,850,875
$295,935,328,000
21,583
$411,075,128
1995 3,476,829
$1,140,808,119
$349,137,768,000
62,441
$1,295,578,117
1996 3,693,076
$1,275,176,752
$400,681,650,000
52,677
$828,036,508
1997 4,102,416
$1,509,787,517
$462,606,433,000
30,338
$519,537,378
1998 4,235,138
$1,668,246,681
$497,621,083,000
57,348
$886,327,133
1999 4,329,985
$1,719,652,696
$534,117,781,000
47,247
$754,970,800
2000 4,369,087
$1,723,824,570
$567,568,653,000
16,362
$251,720,536
2001 4,458,470
$1,740,331,079
$611,918,920,000
43,589
$1,277,002,489
2002 4,519,799
$1,802,277,937
$653,776,126,000
25,312
$433,644,094
2003 4,565,491
$1,897,687,479
$691,786,140,000
36,838
$780,492,440
2004 4,667,446
$2,040,828,486
$765,205,681,000
55,825
$2,232,042,331
2005 4,962,011
$2,241,264,140
$876,679,658,000
212,778
$17,713,105,660
2006 5,514,895
$2,604,844,133
$1,054,087,148,000
24,592
$640,623,771
2007 5,655,919
$2,843,422,049
$1,141,242,230,000
23,129
$612,351,594
2008 5,684,275
$3,066,729,200
$1,197,659,846,000
74,266
$3,450,249,017
2009 5,704,198
$3,202,267,224
$1,233,005,263,000
30,821
$772,390,723
2010 5,559,313
$3,348,222,091
$1,227,932,424,400
27,165
$708,992,043
2011 5,585,797
$3,477,338,993
$1,264,043,634,800
65,315
$1,847,881,892
Source: U.S. Department of Homeland Security, FEMA’s Office of Legislative Affairs.
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Figure 1 shows that over the period from 1978 to 2011, the NFIP experienced nine loss years in
which flood loss payments exceeded premiums written.39 In 2005, Hurricanes Katrina- and Rita-
related losses easily dwarf all other loss years. The flood-related losses from the 2005 and 2008
hurricane seasons resulted in substantial NFIP borrowing from the U.S. Treasury that led to the
current $17.75 billion in cumulative debt. (See Table 4.)
Figure 1. Difference Between Total Premiums Written and Total Payments Made to
Policyholders Under the National Flood Insurance Programs: 1978-2011
($ nominal)
$4,000,000,000
$2,000,000,000
$0
-$2,000,000,000
-$4,000,000,000
-$6,000,000,000
-$8,000,000,000
-$10,000,000,000
-$12,000,000,000
-$14,000,000,000
-$16,000,000,000
-$18,000,000,000
8
80
2
4
86
8
90
2
94
6
8
0
2
04
6
08
0
197
19
198
198
19
198
19
199
19
199
199
200
200
20
200
20
201

Source: CRS presentation based on data from the Federal Emergency Management Agency.
Treasury Borrowing
Table 4 shows the history of U.S. Treasury borrowing and repayments under the NFIP from 1981
through 2011. The NFIP was self-supporting from 1986 until 2005, covering all administrative
expenses and claim payments out of premium income and fees. Since Hurricane Katrina struck in
August 2005, FEMA has had to borrow $19.64 billion, which includes $2.6 billion over the 2007-
2009 period, to pay claims from Hurricane Ike and the Midwest floods of 2008. 40 The NFIP’s
borrowing authority was increased to $20.725 billion on March 23, 2006, and to $30.425 billion
on January 6, 2013.

39 These unusual flood loss years were 1978, 1979, 1980, 1983, 1989, 1995, 2004, 2005, and 2008.
40 It appears unlikely that the $17.75 billion in debt to the U.S. Treasury, as of June 30, 2012, will be repaid within the
next 10 years given annual interest payments of about $1 billion and annual premium income of approximately $3.5
billion.
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Table 4. History of U.S. Treasury Borrowing Under
the National Flood Insurance Program
(as of June 30, 2012; $ nominal)
Fiscal Year
Amount Borrowed
Amount Repaid
Cumulative Debt
Prior to 1981a
$917,406,008
$0
$917,406,008
1981 $164,614,526
$624,970,099
$457,050,435
1982 $13,915,000
$470,965,435
$0
1983 $50,000,000
$0
$50,000,000
1984b
$200,000,000
$36,879,123
$213,120,877
1985 $0
$213,120,877
$0
1986-1993 $0
$0
$0
1994c
$100,000,000
$100,000,000
$0
1995 $265,000,000
$0
$265,000,000
1996 $423,600,000
$62,000,000
$626,600,000
1997 $530,000,000
$239,600,000
$917,000,000
1998 $0
$395,000,000
$522,000,000
1999 $400,000,000
$381,000,000
$541,000,000
2000 $345,000,000
$541,000,000
$345,000,000
2001 $600,000,000
$345,000,000
$600,000,000
2002 $50,000,000
$640,000,000
$10,000,000
October 2002
$0
$10,000,000
$0
2003 (Nov.-Sept.)
$0
$0
$0
2004 $0
$0
$0
2005d
$300,000,000
$75,000,000
$225,000,000
2006
$16,660,000,000
$0
$16,885,000,000
2007
$650,000,000
$0
$17,535,000,000
2008 $50,000,000
$225,000,000
$17,360,000,000
2009
$1,987,988,421
$347,988,421
$19,000,000,000
2010 $0
$500,000,000
$18,500,000,000
2011
$0
$750,000,000
$17,750,000,000
Total $23,707,523,955
$5,957,523,955
$17,750,000,000
Source: CRS presentation based on data from the U.S. Department of Homeland Security, Federal Emergency
Management Agency’s Office of Legislative Affairs.
Notes: Borrowings through 1985 were repaid from congressional appropriations. The NFIP did not borrow
from 1986 through 1993. Since 1994, borrowings are repaid from premium and other income. The existing debt
outstanding is expected to be repaid with premium income or with congressional appropriations.
a. Balance forward from U.S. Department of Housing and Urban Development.
b. Figure for the $213.1 million in cumulative debt in 1984 provided by FEMA reflects additional cost outside
of the insurance program.
c. Of the $100 million borrowed, only $11 million was needed to cover obligations.
d. NFIP borrowed $300 million in 2005 to pay claims from the 2004 hurricane season, but Hurricanes Katrina,
Rita, and Wilma struck after late August 2005, and claims were submitted after the 2006 fiscal year began.
The Flood Insurance Reform Act of 2012 requires FEMA to establish a reserve fund, beginning in
FY2013, to offset claims during catastrophic loss years to reduce the likelihood of the NFIP
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having to borrow from the Treasury.41 Although the 2012 Reform Act does not forgive any
portion of the NFIP debt, it requires FEMA to create a repayment schedule for funds borrowed
from the Treasury and directs FEMA to include catastrophic loss years when assessing flood risk
in order to set annual premium rates.42 The latter requirement allows the program to collect risk-
based premiums that, in theory, would reduce the likelihood of the program encountering
financial deficits that result in program borrowing from the Treasury. Some experts believe that
even if FEMA increased flood insurance rates up to the maximum amount allowed under the new
law (20% per year), the program would still not have sufficient funds to cover future obligations
for policyholder claims, operating expenses, and interest on debt.
Factors Affecting Financial Soundness of the NFIP
In considering the NFIP’s financial solvency, it may be useful to recognize two things: (1) the
NFIP was not capitalized at inception by Congress and (2) the program does not operate under the
traditional insurance definition of fiscal solvency that requires the insurer to have statutory
reserves as a condition of receiving authorization to sell insurance in a given state.
Premium Subsidies
Before the passage of the Flood Insurance Reform Act of 2012, the NFIP faced a long-term
solvency challenge because the program did not have a financing mechanism for handling
catastrophic losses and it charged less-than-actuarial rates for pre-FIRM structures.43 Annual
premiums were not likely to cover the program’s long-term expenses, claim costs, and interest
and principal debt repayment to the U.S. Treasury. Therefore, taxpayers faced financial exposure
from recurring catastrophic flood events.44 FEMA’s old rate-setting structure was designed to
generate premiums at least sufficient to cover losses and loss adjustment expenses relative to the
“historical average loss year.”45 There was no contingent amount added to premiums to build a
surplus. When losses and expenses exceeded premiums, the program was authorized to borrow
from the U.S. Treasury but had to repay the funds with interest.
Many experts insisted that the NFIP would not be financially sound until actuarial risk-based
rates were charged. FEMA reports that 78% of policyholders already pay actuarial premiums,
albeit there is some debate about whether rates reflect the true flood risk to people and property.46

41 P.L. 112-141; 126 Stat. 916, Sec. 100212.
42 Ibid, Sec. 100211.
43 Buildings constructed after December 31, 1974, or after the publication of a flood insurance rate map (FIRM), are
charged an actuarial premium that reflects the property’s risk of flooding. Subsidized rates, on the other hand, are
determined by a statutory mandate that requires rates to be affordable so individuals are encouraged to participate.
Owners of properties built prior to the issuance of a community’s flood hazard map or January 1, 1974 (Pre-Firm
structures), usually pay subsidized rates and are exempted from the NFIP’s floodplain management standards. Even
properties that are remapped into higher-risk areas pay the subsidized rates─a situation that exacerbates the financial
challenges facing the NFIP.
44 U.S. Government Accountability Office, FEMA’s Rate-Setting Process Warrants Attention,” GAO-09-12, October
31, 2008.
45 In contrast, commercial insurance premiums are typically set at a level that covers expected losses and expenses plus
an amount for a profit margin. A portion of each premium dollar collected is then set aside in loss reserves, which are
invested and used to pay claims and expenses.
46 Federal Emergency Management Agency, “Actuarial Rate Review: In Support of the October 1, 2010, Rate and Rule
Changes,” July 2010, p. 22.
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Charging rates that fully reflect flood risk arguably would discourage development in the most
risky areas.
The new law eliminated subsidized premium rates and allowed rates to be adjusted to reflect true
risk, taking into consideration historical loss data, including catastrophic loss years and other
factors, such as coastal storm surge and climate change.47 To address the affordability issue, the
new law authorized a study of the feasibility of an insurance voucher system or similar means
tested assistance.48 As indicated earlier, the Flood Insurance Reform Act of 2012 established a
catastrophe fund to stabilize catastrophe losses from year to year.49
Repetitive Flood Loss Properties
Properties that experience repetitive flood losses, known as a “repetitive loss properties” (RLP)
and “severe repetitive loss properties” (SRLP), account for a disproportionately large share of all
the flood insurance claims filed and paid under the NFIP.50 Historically, it is estimated that
approximately 1% of the properties insured under the NFIP have accounted for over a third of
claims paid. About 1 in 10 homes that suffer repetitive flood damages have cumulative flood
insurance claims that have exceeded the value of the house.51 FEMA estimates that 90% of all
RLPs were built prior to December 31, 1974, or before the adoption of a FIRM—and, hence,
have been subject to premium discounts. Importantly, the annual increase in new RLPs is
outpacing FEMA mitigation efforts by a factor of 10 to 1. After the 1993 Midwest flood, FEMA
and other federal government agencies spent hundreds of millions of dollars to remove frequently
flooded structures from the floodplain.
Table 5 shows that since 1978, a total of 166,368 RLPs have had 496,178 claims paid, which has
cost the National Flood Insurance Fund a total of $12.1 billion in nominal dollars. Appendix A
shows RLPs by state. The average claim for these properties was $24,388.

47 P.L. 112-141; 126 Stat. 916, Sec. 100211.
48 Ibid., Sec. 100236.
49 Ibid., Sec. 100212.
50 A repetitive loss property (RLP) is defined as an insured property that experiences two or more flood losses greater
than $1,000 within any 10-year period. A subset of RLPs, called severe repetitive loss properties (SRLP), have incurred
at least four NFIP claim payments of at least $5,000 each or the cumulative amount of such claims payments exceeds
$20,000 or for which at least two separate claims have been made with the cumulative amount of the building portion
of such claims exceeding the market value of the building.
51 U.S. Department of Homeland Security, Office of Inspector General, FEMA’s Implementation of the Flood
Insurance Reform Act of 2004, OIG-09-45, March 26, 2009, p. 4, at http://www.dhs.gov/xoig/assets/mgmtrpts/OIG_09-
45_Mar09.pdf.
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Table 5. Total Repetitive Flood Loss Properties in the NFIP: 1978-2011
(as of December 31, 2011: $ nominal)
Building Payments
$9,332,087,006
Contents Payments
$2,768,293,788
Total payments
$12,100,980,774
Average payment
$24,388
Number of Losses
496,178
Number of Properties
166,368
Source: U.S. Department of Homeland Security, Federal Emergency Management Agency.
FEMA has undertaken several actions over the years to address the RLP problem. The initial
strategy, announced in 1999, was to identify the nation’s inventory of RLPs and focus on
structures that were substantially damaged (i.e., damaged 50% or more of market value), at which
time they would be reconstructed, elevated, or flood-proofed to prevent future damage. One
reported difficulty has been reluctance and inconsistency at the local community level in
declaring structures substantially damaged, which triggers the requirement to rebuild to a higher
flood construction standard.
FEMA also pursued a strategy of phasing out premium subsidies on RLPs through voluntary
buyouts or the imposition of full actuarially based rates on RLP owners who refuse to accept
FEMA’s offer to mitigate the effect of flood damage. In addition, the agency incorporated special
incentives into the Community Rating System and provided data to states and communities to
help them address the RLPs.
The Flood Insurance Reform Act of 200452 required FEMA to establish the Repetitive Flood
Claims (RFC) and the Severe Repetitive Loss (SRL) Grant programs to provide funding to reduce
or eliminate the long-term risk of flood damage under the NFIP. The RFC program offers grants
to states and local governments to mitigate future flood losses. Mitigation projects typically
include demolishing, relocating, elevating, or flood-proofing structures. However, the SRL
program has proven to be cumbersome for communities and states to administer. Currently, there
are more than 12,300 SRL policies being serviced in the NFIP-Special Direct Facility (NFIP-
SDF).
The Flood Insurance Reform Act of 2012 streamlined and reauthorized the Flood Mitigation
Assistance Program (FMA), the RFC, and the SRL to allow federal funds to be used for
mitigation of repetitive- or severe-repetitive-loss structures to improve their effectiveness and
efficiency.53
Low NFIP Program Participation
The intent and success of the NFIP rests on making affordable flood insurance widely available to
the general public and protecting communities from potential damage through floodplain
management. Since 1973, federal regulations have required flood insurance on structures located

52 P.L. 108-264; 118 Stat. 712.
53 P.L. 112-141, Sec. 100225.
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in identified Special Flood Hazard Areas (SFHAs) that have a federally backed mortgage. Also,
since 1994, recipients of certain flood disaster assistance have been required to purchase and hold
flood insurance to protect against future flood losses, under penalty of receiving no federal
disaster aid in subsequent floods.54 Despite the existence of this mandatory flood insurance
purchase requirement, take-up rates for flood insurance have historically been low and the federal
government’s exposure to uninsured property losses from flooding remains substantial. Many
homeowners do not completely recognize or internalize their flood risk and are overly optimistic
about the magnitude of the flood risk to which they are exposed. Consequently, the NFIP has not
achieved the level of individual participation originally envisioned by Congress.
Researchers indicate that there are at least five possible explanations for the low market
penetration for flood insurance: (1) flood insurance is not seen as being worth the cost (i.e., a poor
investment); (2) individuals have misperceptions about low-probability risks and lack information
about the NFIP;55 (3) private insurance agents do not market NFIP policies; (4) lack of
compliance with the mandatory purchase requirement or failure to ensure that property owners
maintain coverage for the life of the loan; and (5) many homeowners in risky areas either do not
have a mortgage or have a mortgage from a lender that does not enforce the mandatory purchase
requirement.
FEMA lacks nationwide data on the number of properties in floodplains, which makes it difficult
to accurately determine insurance market penetration. Available evidence suggests that
penetration rates in the 100-year floodplain are consistently low. A 2006 study of the NFIP’s
mandatory purchase requirement nationwide conducted by the Rand Corporation indicated that
only about 49% of single-family homes in SFHAs are covered by flood insurance.56 In the
absence of flood insurance, the cost of repairing flood-damaged property is usually borne by
either the property owner from their own financial resources or with assistance through federal
relief programs, instead of by flood insurance payments. This situation has resulted in billions of
dollars of uninsured property losses and arguably results in higher social costs.
The Flood Insurance Reform Act of 2012 addressed the lack of enforcement of the mandatory
insurance purchase requirement by increasing the amount of civil penalties that can be imposed
against regulated lending institutions that fail to require flood insurance from $350 to $2,000 per
violation.57
Inaccurate Flood Hazard Maps
FEMA is responsible for identifying and mapping the nation’s floodplain areas and identifying
flood-risk zones in such areas. Flood Insurance Rate Maps (FIRMs) are used for setting flood
insurance rates, regulating floodplain development, and communicating information about the
1%-annual-chance flood hazard to those who live in floodplains. FIRMs also are used to
determine whether property owners are required by law to obtain flood insurance as a condition
of obtaining mortgage loans or other federally related financial assistance. Without accurate and

54 CRS Report RS22945, Flood Insurance Requirements for Stafford Act Assistance, by Edward C. Liu.
55 Howard C. Kunreuther, “The Changing Societal Consequences of Risks from Natural Hazards.” Annals of the
American Academy of Political and Social Science 1979, vol. 443, pp. 104-116.
56 Rand Institute for Civil Justice, “The National Flood Insurance Program’s Market Penetration Rate: Estimates and
Policy Implications,” 2006, available at http://www.rand.org/pubs/technical_reports/2006/RAND_TR300.pdf.
57 P.L. 112-141; Sec. 100208.
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updated flood hazard maps, property owners and small businesses could underestimate their
exposure to flood risks and make poor financial decisions about protecting their properties (i.e.,
where to build and whether to purchase flood insurance or take other measures to protect their
properties).
The Flood Insurance Reform Act of 2012 authorized several regulatory changes to improve the
accuracy of flood maps and established a process to allow communities to request a remapping
based on the standards recommended by a newly established Technical Mapping Advisory
Council and adopted by FEMA.58 The new law also authorized the creation of an independent
Scientific Resolution Panel consisting of experts on flood hazard maps and flood insurance to
address mapping-related concerns from communities that are dissatisfied with the outcome of
their appeal to FEMA.59
Lack of Enforcement of Floodplain Management Regulations
The Flood Insurance Reform Act of 2012 requires FEMA to conduct a study of the impact,
effectiveness, and feasibility of including widely used and nationally recognized building codes
as part of the floodplain management criteria. The new law would also allow the use of funds
under the Community Development Block Grant Program (CDBG) to include community
building code administration grants.60
Under the NFIP, FEMA is prohibited from providing flood insurance to property owners residing
in communities not participating in the NFIP.61 Local communities must adopt and enforce certain
minimum floodplain management ordinances as a condition for participation in the NFIP.
However, efforts to guide construction and development away from high-risk areas through
community-based land-use and zoning ordinances have reportedly been subordinated to building
and elevation requirements that lead to further development of the floodplains.62 Even in hazard-
prone floodways and coastal areas, building and rebuilding are allowed under NFIP standards,
with the cost of insurance varying with property elevation.
Coastal Flood Hazard Risk Assessment and Mapping
One issue of contention that emerged from the controversy and litigation surrounding Katrina-
related wind versus water insurance claims disputes was whether the NFIP should be expanded to
allow policyholders to purchase optional wind coverage. Following the storm, individuals and
businesses in Louisiana, Mississippi, and Alabama protested against what they claimed were
inappropriate obstacles to the payment of their property damage insurance claims. When
insurance adjustors and damage experts assessed the properties damaged by Hurricane Katrina,
they were faced with the issue of allocating damages between wind (a covered loss) and flood (an
excluded loss). Post-Katrina insurance claims litigation and the delays and economic uncertainty

58 Ibid, Sec. 100216.
59 Ibid, Sec. 100218.
60 Ibid. Sec. 100243.
61 44 CFR 59.21.
62 National Wildlife Federation, Heavy Rainfall and Increased Flooding Risk: Global Warming’s Wake-up Call for the
Central United States, 2008, at http://www.nwf.org/extremeweather/pdfs/Heavy_Rainfall_and_Increased_Flooding-
Wake-Up_Call_for_Central_U.S2.pdf.
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generated for consumers and insurers raised concerns about post-event judicial interpretations of
the scope of insurance coverage.
Proponents of optional wind coverage under the NFIP argued that this policy change was
necessary because of the difficulties property owners faced in obtaining affordable private wind
coverage in states along the Gulf and Atlantic Coasts. Private insurers had increased premiums
and deductibles and reduced coverage or withdrawn altogether from these areas out of concern
about catastrophic risk exposure.
Opponents of adding wind coverage to the NFIP believed there was adequate wind coverage
capacity in every state through either the traditional private market or through the state residual
market program (e.g., wind pools). Critics maintained that expanding the NFIP to add wind
coverage would dramatically increase the financial exposure of the NFIP and, hence, federal
taxpayers. Concerns were also expressed about the NFIP’s ability to determine actuarially sound
rates for the windstorm portion of this coverage and avoid wide-scale financial deficits in the
program following a catastrophic flood event.
Moreover, there were concerns that even actuarial rates may not produce sufficient premium
income to cover the program’s administration costs and losses in the event of a catastrophic event.
The Government Accountability Office (GAO) issued a report in 2008 that outlined some
difficulties that FEMA could face in implementing an optional wind coverage provision. Some of
the obstacles included (1) the concern about “adverse selection” or the likelihood that only those
property owners at highest risk would purchase coverage; (2) wind hazard prevention standards
that communities would have to adopt to receive coverage; (3) uncertainty about the adoption of
programs to accommodate wind coverage; (4) difficulties in establishing a new rate-setting
process; (5) enforcement of new building codes; and (6) administration and oversight of the
program.63
The Flood Insurance Reform Act of 2012 established the Consumer Option for an Alternative
System to Allocate Losses (COASTAL) program to authorize the use of scientific coastal hazard
data collected by NOAA in conjunction with engineering formulas to be developed by FEMA to
accurately assess flood insurance claims for total-loss, “slab” properties.64 The aim of the
COASTAL program is to better estimate wind versus water risks and allocate insured losses
following a major hurricane, storm surge, or tornado.
Moral Hazard and Federal Disaster Assistance
According to the written testimony of Administrator Craig Fugate of FEMA, most owners of
flood-prone property in NFIP-participating communities opted to not purchase flood insurance
prior to a purchase mandate, choosing instead to rely on federal disaster assistance to finance their
recovery.65 As discussed above, the low-penetration rate of NFIP continues and suggests that

63 U.S. Government Accountability Office, GAO-08-504, National Catastrophe Insurance: Analysis of Proposed
Combined Federal Flood and Wind Insurance Program, April 25, 2008.
64 P.L. 112-141; Sec. 100252.
65 Testimony of Craig Fugate, administrator of Federal Emergency Management Agency, before the Senate Committee
on Banking, Housing, and Urban Affairs, National Flood Insurance Program Reform, June 9, 2011, p. 3, located at
http://banking.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=c6f08bf5-5daa-4406-b461-
1781159ec9c1.
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many people may still rely on federal disaster assistance instead of flood insurance. In economic
theory, the assurance of federal assistance in the event of repeated disaster-related losses may
create a “moral hazard” by lowering the incentives to take appropriate steps to mitigate loss. This
situation counteracts one of the original objectives of the NFIP, which is to develop mitigation
plans and implement measures (insurance linked to land management) to reduce future flood
damages and the cost of taxpayer-funded disaster assistance.
In 1977, President Jimmy Carter signed into law Executive Order 11988 to require federal
agencies to avoid direct and indirect support of floodplain development in coastal velocity
zones—the so-called V zones on FIRMs—by taking action “to reduce the risk of flood loss, to
minimize the impact of floods on human safety, health and welfare, and to restore and preserve
the natural and beneficial values served by floodplains in carrying out its responsibilities.”66
Under E.O. 11988, FEMA staff must (1) determine eligibility and the required elevation of all
new construction in coastal high-hazard areas on the Gulf Coast and (2) decide whether new
structures, the costs of repair, or the replacement of facilities in V zones are eligible for FEMA
funding.
Although regulatory guidelines for E.O. 11988 are outlined in 44 CFR Part 9, there has arguably
been a lack of clarity in interpreting those guidelines to determine whether officials are to support
recovery and community development in V zones. Access to federal assistance for recovery and
hazard mitigation projects undertaken in V zones could emerge as an important issue in the
aftermath of Hurricane Sandy. The decision to approve and obligate FEMA recovery funds for
public assistance projects located in V zones could be an essential consideration in the
reconstruction or redevelopment of some coastal areas devastated by Hurricane Sandy.
Remaining Issues for Possible Congressional
Oversight
Since 2008, when the NFIP lost its authorization, Congress has passed 17 short-term extensions
and the program has lapsed 4 times (see Appendix C). The Flood Insurance Reform Act of 2012
did not resolve all flood management issues pertaining to the NFIP. The law reflects a consensus
as of that moment in time with respect to the financial stability and administrative efficiency of
the NFIP, the need to have those who reside in flood-prone areas to pay for that risk, and the need
for strengthening the mapping program. However, several policy issues and questions remain for
future congressional consideration. These remaining issues and questions include the following:
The nation’s increasing flood risk vulnerability in an era of frequent extreme weather and
climatic events and population growth in flood-prone areas
• What are the true costs borne by the federal government under the NFIP with
consideration of both the direct effects and indirect social and economic costs?

66 U.S. President Jimmy Carter, “Floodplain Management” Executive Order 11988, Federal Register, May 24, 1977, p.
26951, at http://www.fema.gov/plan/ehp/ehplaws/attachments-laws/eo11988.pdf.
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• What additional steps, if any, should the federal government undertake to
effectively manage and mitigate flood disasters and discourage overdevelopment
in flood vulnerable areas?
• How best to strengthen coordination among the nation’s water resources and
floodplain management agencies at the federal, state, and local levels of
government?
• Is there a need to plan for the sustainability of the NFIP in an environment of
increasingly frequent catastrophic flooding across the country?
Affordability of insurance coverage in era of actuarial (full-risk) premium pricing
• Will the changes in premium structure made under the Flood Insurance Reform
Act of 2012 be adequate to address solvency concern?
• What is the feasibility of vouchers for low-income NFIP policyholders who are
not able to pay actuarial flood insurance rates?
• What is the best approach to balance the government’s need to increase the
NFIP’s future income versus making the insurance coverage affordable and
widely available?
• Would the privatization of flood risk make insurance more affordable or less so?
Is the private sector up to the task? Is there capacity to underwrite this risk?
Debt forgiveness
• Should Congress eliminate the NFIP’s debt to the Treasury?
• What are the distributional consequences across different stakeholders of debt
forgiveness?
• Will the NFIP reserve fund be sufficient to offset future catastrophic loss years?
Accuracy of flood hazard maps and risk assessment methods
• In the aftermath of recent catastrophic flood events, what should be the scope of
coastal hazard mapping and risk assessment and property damage mitigation in
U.S. Atlantic and Gulf of Mexico coastal communities that are inherently at risk
from hurricanes, sea-level rise, erosion, and coastal flooding?
• Is there a need for consistency between U.S. Army Corps of Engineers and
FEMA levee certification, that is, a definition of flood protection? What is the
best way to improve risk communication with respect to flood control structures?
• What is the feasibility of NOAA and FEMA developing accurate and consistent
coastal hazard risk assessment and mapping tools and methodologies?
• What would it take to produce both flood risk and coastal hazard vulnerability
maps?
• What will be the effectiveness of FEMA’s efforts to have the level of risk
reflected in flood insurance rates?
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Movement toward a comprehensive integrated watershed management framework of risk
perception, risk management, and disaster response strategy
• Is it time for a more encompassing water resources and mitigation planning
process that encourages flood and water resources planning and flood mitigation
on a watershed basis? How best to promote a comprehensive approach to
resource management on a watershed basis?
• What is the best approach to strengthening local floodplain management and
planning and guide development and building practices in regulated floodplains
to save lives and reduce property damage?
Feasibility of catastrophic disaster insurance
• What is the best approach to address misperceptions about the nature of the NFIP
and barriers to public understanding of flooding and flood risk?
• Should the NFIP cover all claims associated with catastrophic losses or just
claims in the average annual loss year?
Federal disaster assistance and moral hazard
• Does the presence of federal disaster assistance introduce moral hazard in flood
management in a way that inappropriately shifts risk to taxpayers?67 Property
owners may choose not to purchase the coverage, relying instead on federal
disaster assistance to finance recovery. Is there a need to better coordinate the
need for insurance coverage rather than access to government relief for post-
flood recovery? Separately, some experts have suggested that access to federal
disaster assistance under the Stafford Act could have the unintended consequence
of shielding communities from the full implications of their decisions on land use
and families from the financial consequences of rebuilding in disaster-prone
areas.
Options for Managing and Financing Flood Risk
Despite billions invested in flood management, the United States has not been able to curb the
rising costs of flood damage and public and private development in flood risk areas. This was the
conclusion of the Gilbert F. White National Flood Policy Forum held in November 2007 at
George Washington University. 68 The forum brought together 92 diverse experts to consider the
future of floodplain management under a “business-as-usual scenario” and under an alternative
scenario of aggressive action to address increasing flood risk in the nation. The experts at the
forum concluded that an unprecedented set of conditions (e.g., population growth and migration,

67 Government disaster assistance is usually available only for uninsurable damages. The recipients of disaster
assistance do not bear direct cost for remittances. However, the availability of disaster assistance could produce a moral
hazard problem. It could reinforce vulnerabilities and provide little incentive to reduce risky behavior. Moreover,
disaster assistance could reduce the direct costs associated with risky behavior, where costs are shifted to taxpayers.
68 Association of State Flood Plain managers, Floodplain Management 2050: A Report of the 2007 Assembly of the
Gilbert F. White National Flood Policy Forum, November 6-7, 2007.
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changes in climate, and degradation of water-based resources) now faces the United States that
could increase flood losses more rapidly in the future. Several policy options emerged, and are
listed below.
Long-Term Flood Insurance Contracts
Long-term flood insurance contracts (LTFIC) coupled with mitigation loans arguably would
encourage investment in risk-reduction measures.69 The idea is for private insurers to offer 5-, 10-
or 20-year flood insurance contracts combined with long-term mitigation loans (e.g., for
retrofitting, elevation, and flood-proofing of structures) tied to the mortgage. Mitigation loans
would be offered to help finance the high upfront costs associated with investing in mitigation
measures. The long-term flood insurance policies would have a maturity that corresponds to the
length of the mortgage on the property and the policy would not terminate when the property
owner sells the property.
The economic rationale for using LTFI to pre-fund disaster costs is that insurers, generally, need
guaranteed premiums for a long time period if rates are to be based on expected losses. By
lengthening the term of the property insurance contract, and spreading the risk through a
mandatory purchase requirement, LTFI contracts could implicitly permit insurers to compensate
for their present inability to prepare adequately for rare and unpredictable flood events.
Privatization of Flood Risk
FEMA has a responsibility to examine the NFIP’s contingent liabilities and recommend ways to
provide financial stability to the federal flood insurance program. This activity is performed in
conjunction with the program’s annual rate-setting process. In 2000, FEMA undertook a study
with the assistance of accounting firm Deloitte & Touche to explore alternative financing
arrangements to reduce the need for U.S. Treasury borrowing.70 FEMA was concerned about the
NFIP’s erratic cash flow and the potential for catastrophic losses within a short period of time.
Since Hurricane Katrina in 2005, recognizing the shortcomings of the current financing
arrangement under the NFIP, two basic alternatives have emerged: a multi-peril insurance
approach and a reinsurance pool approach (i.e., standing facility provided for in the original 1968
act) that would expand the private-sector involvement in the NFIP. With the development of
computer simulation catastrophe risk models and remote sensing technologies, some private-
sector firms have argued that reinsurance and catastrophe bonds are good ideas that should be
explored.
In this context, FEMA could require private insurers to “make available” private flood insurance
policies at actuarially determined prices in flood-prone areas with the federal government
providing federal reinsurance (see discussion on “Multi-peril Insurance” below). The Flood
Insurance Reform Act of 2012 requires FEMA and GAO to study the option of privatizing the

69 For more information see Carolyn Kouky and Howard Kunreuther, “Improving Flood Insurance and Flood Risk
Management: Insights from St. Louis, Missouri,” Resources for the Future, February 2009, at http://www.rff.org/rff/
documents/rff-dp-09-07.pdf.
70 Federal Emergency Management Agency, National Flood Insurance Program: Discussion of Financial Stabilization
Possibilities, FEMA Unpublished Internal Document, November 20, 2000.
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program and to report to Congress within one year of enactment.71 The new law also mandated
the director of the Federal Insurance Office to study the current state of the market for natural
disaster insurance in the United States.72
Multi-Peril Homeowners Policies Covering the Flood Peril
Along the lines of privatization, Congress might choose to encourage private insurers to offer
multiple-peril insurance policies covering the flood peril, and to have this risk segmented for the
insurers’ other book of business and transferred through reinsurance transactions to the federal
government. Under this arrangement, the federal government would operate as a reinsurer, rather
than a direct writer as it does currently under the Write Your Own Program. The underwriting of
flood risk by private insurers would be exempt from state insurance law. Rates, flood maps, and
the criteria (regulation) for land management and use would continue to be the responsibility of
the federal government. States and local communities would continue to enforce floodplain
management regulations developed by the federal government. Lending institutions would
continue to enforce the NFIP mandatory flood purchase requirement.
In theory, the main benefits of the “multi-peril policy” option would be enhanced efficiency in
risk financing through greater pooling and diversification of flood risk. The flood coverage would
be distributed more broadly through the larger homeowners’ insurance market, resulting
presumably in more contracts issued, and losses spread more broadly among all insurers.
On the other hand, this option could give rise to questions of fairness, the potential for new
liabilities for federal taxpayers, and institutional and practical issues surrounding the way private
and social risks are managed and financed (e.g., rate setting processes, data quality, coverage for
catastrophic losses, oversight, and “who benefits and who pays for development at risk”).
Community-Based Flood Insurance Policy Contracts
Congress might choose to explore the feasibility of group flood insurance either for entire
communities, identified-floodplain areas, or residual-risk areas behind levees. The group policy
would be purchased by the community on behalf of all residents. Premiums would be collected
either through property taxes or as a utility-type payment. In the 112th Congress, the House of
Representatives passed H.R. 6186 to require FEMA to undertake a study of the feasibility of
voluntary community-based flood insurance options and how such options could be incorporated
into the NFIP. The bill required the GAO to review and provide an analysis of the FEMA study
and to report its findings and recommendations to Congress within one year. To address the
affordability of insurance for low-income property owners, Congress might also explore the
feasibility of providing means-tested flood insurance vouchers.
Integrated Watershed-Based Risk Management Strategy
In recent years, FEMA has undertaken a long-term flood risk management strategic planning
effort. This effort included studying the feasibility of a more integrated watershed-based risk

71 P.L. 112-141; Sect.100232.
72 Ibid., Sec. 100247.
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management strategy designed to weave flood hazard data developed in support of the NFIP into
watershed-based risk assessment. The goal has been to increase the public’s awareness and
understanding of risk management and to address the nation’s increasing vulnerability to flood
risk and water resources management challenges. This integrated (some call it “holistic”)
approach to flood risk management draws on floodplain management with natural resources (i.e.,
water resources and waste water) management; it requires coordination among federal, state, and
local authorities, businesses, and individuals homeowners.
Many disaster experts believe effective flood risk management policy will require
intergovernmental coordination of natural resources management with floodplain management
activities that reduce the vulnerability of people and economic assets to catastrophic flooding.
Policymakers have been moving in this direction for several years.
Technological Innovation in Financing Large-Scale Natural
Disasters
The series of extreme weather events since 2005 underscores some social and economic
challenges to U.S. disaster risk management policy. The costs of reconstruction and compensation
for flood victims are financed through tax revenue, dedicated disaster funds, and, to a lesser
extent, private insurance payments. Private disaster insurance, however, has become less
available and affordable because of insurability problems posed by uncertainties surrounding
extreme risks, such as catastrophic flood events.
The Biggert-Waters Flood Insurance Reform Act of 2012 authorized FEMA to study the capacity
of private insurers, reinsurers, and financial markets to assist communities in managing financial
risk associated with flooding.73 One possible public-private initiative for financing catastrophic
flood risk is for the government to encourage private-sector technological innovation—through
tax and regulatory policy changes—in financing recovery from large-scale natural disasters.
Given the nation’s increasing flood exposure, and the desire to alleviate taxpayers’ responsibility
for flood losses (i.e., post-disaster relief), some disaster experts have expressed an interest in
finding alternative ways to finance residual flood risk through the standardization of insurance-
linked securities that transfer flood risk on an electronic platform to the capital markets. This
approach would reduce the government’s current role under the NFIP.
In November 2012, at an annual meeting of the National Association of Insurance
Commissioners, Center for Insurance Policy Research (NAIC/CIRP), regulators and stakeholder
groups with an interest in catastrophe risk financing explored new standards for transparency,
compliance, and accountability with respect to two kinds of large scale disasters: environmental
(i.e., catastrophe risk) and financial (i.e., residential mortgage back securitization). One speaker at
the meeting, David M. Rowe, concluded that in order to efficiently transfer risk to capital markets
via the issuance of financial instruments, two obstacles must be overcome: (1) a computer system
challenge that involves data storage, communication issues, and computer processing analytics
and (2) finding ways to make risk exchanges and transaction platforms more efficient.74 Eric

73 P.L. 112-141; Sect. 100232(b).
74 See, Comments of David M. Rowe, President, David M. Rowe Risk Advisory, before the NAIC/CIRP Luncheon
Panel on Financing Home Ownership, November 30, 2012, located at http://www.marketcore.com/media/Marketcore-
David_Rowe-Press_Release.pdf.
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Nordman, director of Research for the NAIC, and coordinator of the study released at the 2012
NAIC/CIRP meeting, suggested that the two risk management challenges identified by David M.
Rowe could be addressed through regulatory changes in the way insurance companies invest in
certain financial instruments, including residential mortgage-backed securities.75
During the NAIC/CIRP panel discussion, Michael Erlanger, managing principal of Marketcore, a
company that developed an electronic system architecture for aggregating risk elements in a way
that facilitates valuations for complex risk transfers, stated that legislation introduced in previous
Congresses, the Homeowners Defense Act,76 had, among other things, called for a change in
regulatory structures that deliver consistent micro-to-macro risk-detailing views in near real time,
assuring transparency in the market for catastrophe risk, including flood risk. He pointed out that
the act called for the creation of a National Catastrophe Risk Consortium to (1) encourage data
capture that leads to catastrophe risk differentiation and (2) expand the ability of private-sector
financial and capital market firms and state residual property insurance pools to underwrite and
bear the risk of an extreme event, such as a catastrophic flood event.
The Consortium, Erlanger stated, could, in theory, establish a holistic risk assessment framework
that results in ever more granular market information induced by financial and strategic
incentives for risk disclosure by all market participants. The standardized “granular risk data” at
the contract level could be aggregated and the risk transferred via the Consortium’s electronic
platform to investors in the capital markets. This structure arguably would induce transparency,
provide market liquidity for catastrophe risk financing, and track all changes in the underlying
contracts (e.g., flood policies) in real time.
In theory, driving transaction volume and associated liquidity to a new exchange by leveraging
the most valuable thing the new exchange provides, namely, the reliable, timely, and detailed
information it creates, could enable financial markets to supply the necessary pressure for sellers
(private insurers, reinsurers, and capital markets participants) to make their offerings increasingly
more transparent.
Opposition to the Homeowners’ Defense Act of 2010 in the 111th Congress had come from
representatives of insurance and reinsurance groups, and several organizations including the
National Fire Protection Association, National Flood Determination Association, National
Wildlife Federation, Heartland Institute, Taxpayers for Common Sense, and Competitive
Enterprise Institute. These groups argued the legislation would encourage coastal development in
environmentally sensitive areas by lowering costs, bail out wealthy owners of beachside vacation
homes, and crowd out the private insurance market.
Concluding Observations
The current system of managing and financing flood risk (NFIP) is more than $20 billion in debt.
The Flood Insurance Reform Act of 2012 made significant changes in the financial, operational,
and management structures of the NFIP. Specifically, this law would work to achieve several

75 See Eric Nordman, Financing Home Ownership: Origins and Evolution of Mortgage Securitization - Public Policy,
Financial Innovations and Crises, located at http://www.naic.org/documents/
cipr_120812_white_paper_financing_home_ownership.pdf.
76 H.R. 2555 (111th Congress): Homeowners’ Defense Act of 2010.
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outcomes: (1) implement a phase out of premium rate subsidies that have undermined the
financial viability of the program; (2) ensure that flood risk maps are updated and accurate and
take into account anticipated sea-level rise and residual risk behind levees so that people
understand and can better prepare for their risks; (3) encourage broad participation in the NFIP;
and (4) streamline and strengthen federal mitigation programs to protect flood-exposed homes,
businesses, and communities better, which helps to decrease future flood losses.
Some experts question whether the NFIP still provides appropriate protection against the peril of
flood losses and helps build resilient communities. The success of the NFIP will be judged in part
by how it handles five major challenges:
• Extreme weather events and coastal flooding. Most experts expect coastal storm surge
and storm impacts will intensify as sea levels continue to rise. According to FEMA, flood
and flood damage associated with extreme rainfall events have risen from $6 billion to
$10 billion each year, despite billions spent on flood control.
• Accurate Flood Risk Maps. The accuracy and reliability of FEMA’s flood mapping
process. FEMA’s Risk Mapping, Assessment, and Planning (Risk MAP) provides flood
hazard data and tools to increase public awareness and help people make better decisions
to protect themselves and communities to enforce floodplain management regulations
that support the building of sustainable and resilient communities.77
• Financial Sustainability of the NFIP. The financial soundness of the NFIP
requires flood insurance premiums to fully reflect a building’s actuarial risk.
Some experts have argued that subsidized insurance rates facilitate development
in flood-prone areas that put people and property at risk. Compensating flood
victims with federal disaster relief is costly and a potential burden on federal
taxpayers. But requiring property owners to pay full actuarial rates that reflect
actual risk could make flood policies less affordable.
• Residual Flood Risk from Levees. The existing regulatory framework for
residual flood risk behind certified 100-year levees has created a perceived safety
zone that spurs development behind the levee systems.78 Individuals might think
a flood occurring once in a 100-year period could not harm them and, therefore,
choose not to seek financial protection against this risk. Most disaster experts
would agree that resolution of the nation’s flood management challenge must
involve hazard-mitigation measures that get people and communities to retreat or
avoid living in flood-prone areas while supporting the building of hazard-resilient
coastal communities.
• Distributional Effects of the NFIP. There is a perception of the inequitable
distribution of the NFIP’s costs and benefits across income groups and
geographic regions.

77 See Department of Homeland Security, Federal Emergency Management Agency, “FEMA’s Risk Mapping,
Assessment, and Planning (Risk MAP), Fiscal Year 2012 Report To Congress,” February 23, 2012, at
http://www.fema.gov/library/viewRecord.do?id=5924.
78 Under 44 CFR 65.10 regulations, FEMA removes areas protected from certified 100-year levees from the flood map.
Individuals are then not required to purchase flood insurance and floodplain management standards are not applicable
in these areas. If a levee is not certified, FEMA will designate the area behind the levee as a risk and the mandatory
purchase requirement will apply.
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Appendix A. National Flood Insurance Program’s
Repetitive Flood Loss Properties
Table A-1. Repetitive Flood Loss Properties in the
National Flood Insurance Program
(as of December 31, 2011; $ nominal)
State Name
Building Payments Contents Payments
Total Payments
Average Payment Losses Properties
Alabama $402,612,962.16
$81,730,441.39
$484,343,403.55
$35,084.64
13,805
4,833
Alaska $972,686.23
$137,448.10
$1,110,134.33
$13,375.11
83
31
Arizona $7,732,063.08
$1,372,949.13
$9,105,012.21
$15,251.28
597
258
Arkansas $37,637,695.99
$9,726,561.34
$47,364,257.33
$21,249.11
2,229
808
California $155,312,672.34
$37,638,334.53
$192,951,006.87
$21,175.48
9,112
3,299
Colorado $1,010,193.40
$354,498.51
$1,364,691.91
$10,338.58
132
57
Connecticut $72,987,538.72
$21,270,677.91
$94,258,216.63
$18,053.67
5,221
1,667
Delaware $24,442,431.44
$13,222,588.18
$37,665,019.62
$34,778.41
1,083
395
District Columbia
$613,444.22
$16,919.85
$630,364.07
$19,101.94
33
14
Florida $1,074,522,754.69
$283,995,996.57
$1,358,518,751.26
$32,274.99
42,092
16,546
Georgia $103,724,414.09
$26,811,644.87
$130,536,058.96
$29,768.77
4,385
1,604
Guam $363,009.86
$52,467.45
$415,477.31
$13,849.24
30
14
Hawai $10,801,779.20
$2,274,003.49
$13,075,782.69
$24,953.78
524
187
Idaho $591,608.96
$100,132.05
$691,741.01
$10,980.02
63
24
Illinois $124,766,766.99
$27,723,077.14
$152,489,844.13
$12,761.72
11,949
3,954
Indiana $54,697,450.19
$10,569,246.21
$65,266,696.40
$16,143.14
4,043
1,467
Iowa $52,098,900.80
$12,491,664.61
$64,590,565.41
$23,694.26
2,726
1,033
Kansas $21,231,625.75
$9,189,450.32
$30,421,076.07
$24,278.59
1,253
445
Kentucky $89,312,937.78
$28,477,331.70
$117,790,269.48
$19,459.82
6,053
1,817
Louisiana $2,029,521,249.82
$646,722,728.26
$2,676,243,978.08
$27,472.04
97,417
29,472
Maine $10,313,173.36
$2,844,104.99
$13,157,278.35
$20,917.77
629
235
Maryland $43,185,640.35
$15,594,237.25
$58,779,877.60
$25,259.94
2,327
959
Massachusetts $131,940,529.86 $28,353,371.58
$160,293,901.44 $17,776.86
9,017
3,045
Michigan $13,402,503.32
$5,179,082.14
$18,581,585.46
$10,975.54
1,693
655
Minnesota $22,679,730.39
$3,707,955.03
$26,387,685.42
$16,298.76
1,619
644
Mississippi $456,372,579.11
$132,138,941.21
$588,511,520.32
$33,232.34
17,709
6,139
Missouri $224,032,976.31
$98,902,428.05
$322,935,404.36
$18,040.08
17,901
5,124
Montana $1,899,435.24
$225,584.67
$2,125,019.91
$13,889.02
153
68
Nebraska $9,232,709.39
$3,031,207.41
$12,263,916.80
$12,909.39
950
380
Nevada $6,955,148.57
$3,435,927.12
$10,391,075.69
$59,377.58
175
76
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State Name
Building Payments Contents Payments
Total Payments
Average Payment Losses Properties
New Hampshire
$17,452,959.68
$2,677,136.28
$20,130,095.96
$23,111.48
871
338
New Jersey
$715,423,006.56
$209,398,401.52
$924,821,408.08
$21,836.03
42,353
12,432
New Mexico
$1,187,339.29
$60,885.43
$1,248,224.72
$13,716.76
91
39
New York
$385,475,945.74
$104,436,883.54
$489,912,829.28
$16,433.96
29,811
10,712
North Carolina
$404,534,147.25
$69,935,397.40
$474,469,544.65
$19,658.17
24,136
8,664
North Dakota
$23,279,423.10
$2,517,270.79
$25,796,693.89
$29,448.28
876
379
Ohio $91,459,636.06
$29,487,550.73
$120,947,186.79
$19,237.66
6,287
2,268
Oklahoma $45,972,663.99
$14,183,242.06
$60,155,906.05
$19,405.13
3,100
958
Oregon $17,795,025.67
$5,818,442.24
$23,613,467.91
$26,237.19
900
339
Pennsylvania $446,636,272.49
$127,959,807.52
$574,596,080.01
$25,615.02
22,432
7,878
Puerto Rico
$17,228,403.79
$39,202,639.67
$56,431,043.46
$9,027.52
6,251
2,040
Rhode Island
$26,195,718.48
$13,469,137.25
$39,664,855.73
$35,798.61
1,108
396
South Carolina
$70,906,728.62
$15,600,759.95
$86,507,488.57
$22,958.46
3,768
1,486
South Dakota
$5,712,923.39
$686,932.13
$6,399,855.52
$16,161.25
396
175
Tennessee $50,621,555.88
$13,993,951.06
$64,615,506.94
$20,512.86
3,150
1,077
Texas $1,325,875,765.26
$468,960,530.48
$1,794,836,295.74
$27,567.06
65,108
20,395
Utah $942,899.43
$202,236.88
$1,145,136.31
$17,350.55
66
27
Vermont $5,712,953.83
$1,323,304.01
$7,036,257.84
$21,257.58
331
133
Virgin Islands
$13,714,143.86
$24,171,345.01
$37,885,488.87
$46,887.98
808
294
Virginia $281,880,147.26
$54,258,059.06
$336,138,206.32
$20,827.70
16,139
6,101
Washington $86,791,060.88
$17,829,587.55
$104,620,648.43
$26,777.74
3,907
1,360
West Virginia
$92,557,791.85
$40,038,260.89
$132,596,052.74
$17,001.67
7,799
2,991
Wisconsin $20,125,657.08
$4,758,741.43
$24,884,398.51
$17,055.79
1,459
624
Wyoming $236,225.06
$32,264.07
$268,489.13
$9,588.90
28
12
Total $9,332,687,006.11
$2,768,293,768.01
$12,100,980,774.12
$24,388.39
496,178
166,368
Source: U.S. Department of Homeland Security, Federal Emergency Management Agency.
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Appendix B. Key Provisions in the Biggert-Waters
Flood Insurance Reform Act of 2012
On July 6, 2012, President Barack Obama signed into law the Flood Insurance Reform Act of
201279 to extend funding for the NFIP to September 30, 2017. This legislation includes several
key provisions:
Actuarial Soundness, Program Solvency, and Affordability
Premium Rate Structure Reform and Affordability
• Immediately eliminate pre-FIRM insurance premium subsidies on second
properties, severe repetitive loss properties and properties that have incurred
flood-related damage that exceed the fair market value of the property, and
commercial properties that have undermined the financial stability of the
program.80
• Gradually phase in actuarial rates for structures newly mapped into special flood
hazard areas.81
• Increase in the annual cap on premium rate increases from 10% to 20%.82
• Authorize a new way of defining “average loss year” when setting annual flood
insurance rates that include catastrophic loss years and raise the cap on premium
increases.83
• Study the economic costs and benefits to taxpayers of providing flood insurance
vouchers to lower-income property owners.84
Privatization
• Study of the capacity of the private reinsurance market to assume a portion of the
NFIP insurance risk,85 and clarify FEMA’s authority to secure reinsurance from
the private market to minimize the probability that the program would need to
borrow Treasury funds.86
• Require FEMA to obtain reinsurance proposals to lay off a portion of the risk.87

79 P.L. 112-141, 126 Stat. 916.
80 Id., Sec. 100205.
81 Ibid.
82 Ibid
83 Ibid.
84 Ibid, Sec. 100236.
85 Ibid, Sec. 100232.
86 Ibid.
87 Ibid.
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• Require the director of the Federal Insurance Office (FIO) to study and report to
Congress on the claims-paying capacity of the private insurance market for
natural catastrophic insurance in the United States.88
Program Solvency and Debt Forgiveness
• Create a $12 billion catastrophe reserve fund to more effectively spread overtime
losses from catastrophe loss years over time while reducing the likely need for
borrowing from the Treasury. 89
• Authorize FEMA to create a repayment schedule for funds borrowed from the
Treasury.90
Flood Map Accuracy
• Establish a Technical Mapping Advisory Council (TMAC) to advise the
administrator of FEMA on risk-based approaches to assessing future flood risk
vulnerability91 and an independent appeals board, Scientific Review Panels, for
homeowners and communities to challenge revisions to their FIRMs with
conflicting technical and scientific data.92
• Establish a process for communities to request a remapping based on standards
developed by the TMAC and adopted by FEMA.93
• Establish a Federal Protection Structure Accreditation Task Force to better align
the data that the U.S. Army Corps of Engineers collect during levee inspection
with the data required under FEMA’s accreditation program.94
• Establish a process and formula (COASTAL—Consumer Option for an
Alternative System to Allocate Losses) for settling wind-related versus water-
related property damage claims disputes by using scientific data currently
collected by the National Oceanic and Atmospheric Administration (NOAA),
academic institutions, and private entities, in conjunction with engineering
formulas to be developed by FEMA, to help allocate total losses between the two
perils or causes of loss after a major storm.95

88 Ibid., Sec. 100247.
89 Ibid., Sec. 100212.
90 Ibid., Sec. 100213.
91 Ibid., Sec. 100215.
92 Ibid., Sec. 100218.
93 Ibid., Sec. 100216.
94 Ibid., Sec. 100218.
95 Ibid., Sec. 100253.
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Mitigation Funding Program Reform
• Combine and streamline FEMA’s flood hazard mitigation programs and move
toward risk-based mitigation planning and activities that result in sustainable
action that reduces risk to life and property from floods.96
NFIP Management and Operational Efficiencies
• Impose civil penalties or enforcement actions for non-compliance with
mandatory flood insurance requirements.
• Set procedures for monitoring contracts and claims records.
• Require federal agencies to work together and share data to improve flood
mapping.97
• Authorize a study of ways to improve interagency and intergovernmental
coordination of flood mapping.98

96 Ibid., Sec. 100225.
97 Ibid., Sec. 100220.
98 Ibid., Sec. 100221.
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Appendix C. Chronology of Public Laws That
Reauthorized the National Flood Insurance
Program: 2008-2012
Last Day of
Presidential
Effective Program
Lapse in NFIP
Signing Date
Public Law
Authority
Authority
September 30, 2008
P.L. 110-329; 122 Stat. 3575
March 6, 2009

H.R. 2638 (Price)—Consolidated Security,
Disaster Assistance, and Continuing
Appropriations Act, 2009 (Sec. 145)
March 6, 2009
P.L. 111-6; 123 Stat. 522
March 11, 2009

H.J.Res. 38 (Obey)—Continuing
Appropriations Resolution, 2009
March 11, 2009
P.L. 111-8; 123 Stat 988
September 30, 2009

H.Res. 184 (Obey)—Omnibus Appropriations
Act, 2009
October
P.L. 111-68; 123 Stat 2047
October 31, 2009

H.R. 2918 ( Wasserman Schultz)—Legislative
1, 2009
Branch Appropriations Act, 2010 (Sec. 129)
October 28, 2009
P.L. 111-83; 123 Stat. 2142
October 31, 2009

H.R. 2892 (Price)—Department of Homeland
Security Appropriations Act, 2010
October 30, 2009
P.L. 111-88; 123 Stat. 2904
December 18, 2009

H.R. 2996 (Dicks)—Department of the
Interior, Environment, and Related Agencies
Appropriations Act,2010 (Sec. 102)
December 19, 2010
P.L. 111-118; 123Stat. 3409
February 28, 2010
March 1, 2010
H.R. 3326 (Murtha)—Department of Defense
Appropriations Act, 2010 (Sec. 1005)
March 2, 2010
P.L. 111-144; 124 Stat 45
March 28, 2010
March 29, 2010
H.R. 4691 (Rangel)—Temporary Extension
Act of 2010 (Sec. 8)
April 15, 2010
P.L. 111-157; 124 Stat 1116
May 31, 2010
June 1, 2010
H.R. 4851 (Levin)—Continuing Extension Act,
2010 (Sec. 7)
July 2, 2010
P.L. 111-196, §2(a); 124 Stat 1352
September 30, 2010

H.R. 5569 (Waters)—National Flood
Insurance Program Extension Act
September 30, 2010
P.L. 111-250, §2(a); 124 Stat 2630
September 30, 2011
October 1, 2011
S. 3814 (Vitter)—National Flood Insurance
Program Extension Act of 2010
October 5, 2011
P.L. 112-36 §130; 125 Stat. 390
November 18, 2012

H.R. 2608 (Graves)—Continuing
Appropriations Act, 2012
November 18, 2011
P.L. 112-55; 125 Stat 710
December 16, 2011

H.R. 2112 (Kingston)—Consolidated and
Further Continuing Appropriations Act, 2012,
Div. D (Sec. 101)
Congressional Research Service
38

The National Flood Insurance Program: Status and Remaining Issues for Congress

Last Day of
Presidential
Effective Program
Lapse in NFIP
Signing Date
Public Law
Authority
Authority
December 16, 2011
P.L. 112-67; 125 Stat. 769
December 17, 2011

H.J.Res. 94 (Rogers)—Making Further
Continuing Appropriations for Fiscal Year
2012, and for Other Purposes
December 17, 2011
P.L. 112-68; 125 Stat. 770
December 23, 2011

H.J.Res. 95 (Rogers)—Making Further
Continuing Appropriations for Fiscal Year
2012, and for Other Purposes
December 23, 2011
P.L. 112-74, Div. D, Title V, §573; 125 Stat.
May 31, 2012

985
H.R. 2055 (Culberson)—Consolidated
Appropriations Act, 2012
May 31, 2012
P.L. 112-123;
July 31, 2012

H.R. 5740 (Biggert)—National Flood
Insurance Program Extension Act
July 6, 2012
P.L. 112-141; 112 Stat. 916; Div. F, Title II,
September 30, 2017

H.R. 4348 – Biggert-Waters Flood Insurance
Reform Act of 2012
Source: Congressional Research Service.

Author Contact Information

Rawle O. King

Specialist in Financial Economics and Risk
Assessment
rking@crs.loc.gov, 7-5975

Congressional Research Service
39