Options for Making the National Flood Insurance Program More Affordable

December 23, 2021 – January 6, 2023 R47000

Options for Making the National Flood
January 6, 2023
Insurance Program More Affordable
Diane P. Horn
Concerns about the affordability of flood insurance premiums have come to the fore as FEMA
Specialist in Flood
introduces a new pricing system known as Risk Rating 2.0, which represents the biggest change
Insurance and Emergency
to the way the NFIP calculates flood insurance premiums since its inception. Nationally, 77% of
Management
policyholders will see an increase in their premiums in the first year, with 23% of policyholders

seeing a decrease under Risk Rating 2.0. These impending rate raises, which vary from $120 to
$240 or more annually, have increased congressional interest in reducing the cost burden of flood

insurance on policyholders.
As full risk-based premiums are phased in under Risk Rating 2.0, some policyholders could be faced with large price
increases either because they are currently buying coverage at subsidized rates and/or because the new rating system indicates
that they now have a higher risk. Such increases raise issues of equity, as well as affordability. The NFIP currently insures
just under 5 million structures in the United States, and most of the remaining structures do not have insurance to protect
them against flood risk. This large insurance gap may increase if policyholders drop their coverage because they feel that
premiums are too expensive.
The introduction of a means-tested NFIP affordability program has been under consideration by Congress for years.
However, FEMA does not currently have the authority to implement an affordability program, nor does the NFIP’s current
rate structure provide the funding required to support one. If an affordability program were to be funded from NFIP funds,
this would require either raising flood insurance rates for NFIP policyholders or diverting resources from another existing
use. Alternatively, an affordability program could be funded fully or partially by congressional appropriations. A central
question in any reform of the NFIP is who should bear the costs of floodplain occupancy in the future: individual
policyholders (the insured), federal taxpayers, uninsured flood victims, or some combination of these.
A means-tested affordability program could be implemented in a number of different ways, which may differ in how to
measure when a premium might impose a cost burden on a policyholder. Means-tested affordability assistance could take a
capped-premiums approach, an income-based approach, a housing burden-based approach, a combined income- and housing
burden-based approach, or a community characteristics approach.
In addition, an affordability program is only one possible way of reducing the cost burden to policyholders. This report
outlines a range of policy options Congress could consider to reduce the amount that NFIP policyholders pay, such as
 reducing the amount that policyholders pay through the introduction of a mean-tested affordability
program;
 reducing the amount that individual policyholders pay by increasing participation in the NFIP, which could
distribute program costs amongst a larger population than at present;
 increasing income to the NFIP, which could be used to reduce policyholders’ contributions to the costs of
the program;
 reducing the NFIP debt and thus the amount that policyholders pay in interest on the debt; or
 increasing mitigation activities, which may reduce flood damages and thus flood claims, which could
reduce the amount that policyholders have to pay for claims.
The report also includes a table summarizing past legislative proposals related to NFIP affordability.

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Introduction
Many Members and stakeholders have expressed concern about the perceived affordability of
flood insurance premiums, concerns which have come to the fore as the Federal Emergency
Management Agency (FEMA) introduces a new pricing system known as Risk Rating 2.0. This
new rating system, which is designed to move all National Flood Insurance Program (NFIP)
policies to risk-based pricing, represents the biggest change to the way the NFIP calculates flood
insurance premiums since its inception.1 Nationally, according to FEMA, in the first year 77% of
policyholders will see an increase in their premiums and 23% of policyholders will see a decrease
under Risk Rating 2.0.2 These impending rate raises, which vary from $120 to $240 or more
annually, have increased congressional interest in reducing the cost burden of flood insurance on
policyholders.
The introduction of a means-tested NFIP affordability program has been under consideration by
Congress for years. For example, certain bills for reauthorization and reform of the NFIP in the
115th Congress,3 the 116th Congress,4 and the 117th Congress5 have contained provisions to
establish an affordability program (see Table 1), as well as other provisions related to making
NFIP premiums more affordable. The Build Back Better Act,6 as passed by the House on
November 19, 2021, would have appropriated funding to provide means-tested assistance to
certain NFIP policyholders. However, a means-tested affordability program is only one possible
way of reducing the cost burden to policyholders, and Congress could consider a range of other
options that could reduce the amount that NFIP policyholders have to pay.
A central decision in any reform of the NFIP is who should bear the costs of floodplain
occupancy in the future: individual policyholders (the insured), federal taxpayers, uninsured flood
victims, or some combination of these. Increases in NFIP premiums under Risk Rating 2.0 may
call further attention to the distribution of flood costs as an important policy concern.
Affordability and Solvency of the National Flood
Insurance Program
The NFIP is the primary source of flood insurance coverage for residential properties in the
United States, with just under 5 million policies in more than 22,000 communities in all 56 states
and jurisdictions.7 The NFIP was created by the National Flood Insurance Act of 19688 (NFIA).
The last long-term reauthorization of the NFIP ended at the end of FY2017. Since then, 22 short-

1 FEMA, Risk Rating 2.0: Equity in Action, https://www.fema.gov/flood-insurance/risk-rating.
2 Ibid.
3 H.R. 2874, the 21st Century Flood Reform Act; S. 1313, the Flood Insurance Affordability and Sustainability Act of
2017; and companion bills S. 1368 and H.R. 3285, the Sustainable, Fair, and Efficient (SAFE) Flood Insurance
Program Reauthorization Act of 2017.
4 H.R. 3167, the National Flood Insurance Program Reauthorization Act of 2019; and companion bills S. 2187 and H.R.
3872, the National Flood Insurance Program Reauthorization and Reform Act of 2019.
5 Companion bills S. 3128 and H.R. 5802, the National Flood Insurance Program Reauthorization and Reform Act of
2021.
6 H.R. 5376.
7 For more information on the NFIP, see CRS Report R44593, Introduction to the National Flood Insurance Program
(NFIP), by Diane P. Horn and Baird Webel.
8 Title XIII of P.L. 90-448, as amended, 42 U.S.C. §4001 et seq.
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term NFIP reauthorizations have been enacted,9 and the NFIP is currently authorized until
September 30, 2023.10
As a public insurance program, the objectives of the NFIP are different from the profit-
maximization goals of private-sector companies. The NFIP has two main purposes: to provide
access to primary flood insurance to properties with significant flood risk who might not
otherwise be able to obtain insurance, and to reduce flood risk through the adoption of floodplain
management standards. A longer-term objective of the NFIP is to reduce federal expenditure on
disaster assistance after floods by substituting insurance payments for aid, with individual
policyholders funding at least part of their recovery from flood damage.11 For example, the U.S.
Government Accountability Office (GAO) has argued that to the extent that more consumers have
insurance to protect them from the financial effects of flooding, they may not need federal
disaster assistance to help them recover from flood events. In addition, the receipt of federal
disaster assistance generates the requirement to purchase flood insurance for properties located in
special flood hazard areas. Removing the availability of federal disaster assistance to previous
recipients of such assistance who live in a Special Flood Hazard Area (SFHA)12 and who do not
purchase flood insurance also reduces federal disaster assistance expenditures.13 Flood is one of
the few natural hazards for which at-risk residents pay some of the costs after a disaster.
A key design feature of the NFIP is that policyholders’ premiums, fees, and surcharges are
intended to pay for all flood-related damages and program expenses,14 with the option to borrow
from the U.S. Treasury to pay claims for extreme events. From the inception of the NFIP, the
program has been expected to set premiums that are simultaneously “risk-based” and
“reasonable.”15 GAO notes that FEMA is tasked with two competing goals: keeping flood
insurance affordable and keeping the program solvent.16 The NFIP has been on the GAO high-
risk list since 2006 because of concerns about its long-term fiscal solvency and related
operational issues and, more recently, concerns about the NFIP’s fiscal exposure to climate
change.17

9 For additional information on NFIP reauthorizations since the end of FY2017, see CRS Insight IN10835, What
Happens If the National Flood Insurance Program (NFIP) Lapses?, by Diane P. Horn.
10 P.L. 117-328. For more information on NFIP reauthorization, see CRS Insight IN10835, What Happens If the
National Flood Insurance Program (NFIP) Lapses?, by Diane P. Horn.
11 National Research Council of the National Academies, Affordability of National Flood Insurance Program
Premiums: Report 1 (hereinafter NRC Affordability Report 1), 2015, pp. 31-33, http://www.nap.edu/catalog/21709/
affordability-of-national-flood-insurance-program-premiums-report-1.
12 The Special Flood Hazard Area (SFHA) is defined by FEMA as an area with a 1% or greater risk of flooding every
year.
13 U.S. Government Accountability Office (GAO), National Flood Insurance Program: Congress Should Consider
Updating the Mandatory Purchase Requirement, GAO-21-587, July 2021, p. 35, (hereinafter GAO Mandatory
Purchase Requirement), https://www.gao.gov/assets/gao-21-578.pdf.
14 Some types of properties receive subsidies, which are discussed in the section of this report on “Premium Subsidies
and Cross-Subsidies.”
15 See 82 Stat. 573 for text in original statute (§1302(c) of P.L. 90-448). This language remains in statute (see 42 U.S.C.
§4001(c)).
16 GAO, High-Risk Series: Dedicated Leadership Needed to Address Limited Progress in Most High-Risk Areas, GAO-
21-119SP, March 2, 2021, pp. 281-283, https://www.gao.gov/products/gao-21-119sp.
17 GAO, Climate Change: Opportunities to Reduce Federal Fiscal Exposure, Testimony Before the Committee on the
Budget, House of Representatives, GAO-19-625T, June 11, 2019, p. 7, https://www.gao.gov/products/gao-19-625t.
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In a 2017 report, the Congressional Budget Office (CBO) estimated that the NFIP had an
expected one-year actuarial shortfall18 of $0.7 billion.19 CBO also estimated that the cost of
providing discounted rates to some NFIP policies was about $0.3 billion more than the receipts
from surcharges created to help cover the costs of those discounts.20 This shortfall arises primarily
because premium rates do not fully reflect the full risk of its insured policies. This applies both to
the risk of individual properties and also the risk of catastrophic losses to the program as a whole,
which FEMA has traditionally managed by relying on its authority to borrow from the U.S.
Treasury.21
GAO has been reporting since 1983 that the NFIP’s premium rates do not reflect the full risk of
loss because of various legislative requirements, which exacerbates the program’s fiscal
exposure.22 GAO has also noted that while Congress has directed FEMA to provide subsidized
premium rates for policyholders meeting certain requirements, it has not provided FEMA with
funds to offset these subsidies and discounts, which has contributed to FEMA’s need to borrow
from the U.S. Treasury to pay NFIP claims.23
Premium Subsidies and Cross-Subsidies
Except for certain subsidies, flood insurance rates in the NFIP are directed to be “based on
consideration of the risk involved and accepted actuarial principles,”24 meaning that the rate is
reflective of the true flood risk to the property. FEMA determines full-risk rates25 by estimating
the probability of a given level of flooding, damage estimates based on that level of flooding, and
accepted actuarial principles.26 However, Congress has directed FEMA not to charge actuarial
rates for certain categories of properties and to offer subsidies27 or cross-subsidies to certain
classes of properties in order to achieve the program’s objectives so that owners of certain
existing properties in flood zones28 are able to afford flood insurance.

18 An actuarial shortfall is when income from premiums, fees, and surcharges is too low to cover the costs associated
with paying claims on existing policies and writing and servicing those policies. Congressional Budget Office (CBO),
The National Flood Insurance Program: Financial Soundness and Affordability (hereinafter CBO Affordability),
Washington, DC, September 1, 2017, p. 7. Note that this report was published before the introduction of Risk Rating
2.0.
19 CBO Affordability, pp. 4-5. The actuarial shortfall estimated by CBO in this report excludes $0.7 billion for mapping
floodplains, mitigating flood risk, and interest payment on the NFIP’s debt to the Treasury.
20 CBO Affordability, p. 8.
21 GAO, National Flood Insurance Program: Fiscal Exposure Persists Despite Property Acquisitions, GAO-20-509,
June 25, 2020, p. 32, https://www.gao.gov/assets/710/707821.pdf.
22 Ibid., p. 29.
23 GAO, Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance Resilience (hereinafter GAO
Solvency), GAO-17-425, April 2017, p. 17, https://www.gao.gov/products/GAO-17-425.
24 42 U.S.C. §4014(a)(1).
25 FEMA defines full-risk rates as those charged to a group of policies that generate premiums sufficient to pay the
group’s anticipated losses and expenses. See GAO, National Flood Insurance Program: Continued Progress Needed to
Fully Address Prior GAO Recommendations on Rate-Setting Methods, GAO-16-59, March 2016, p. 8,
http://www.gao.gov/assets/680/675855.pdf.
26 For a brief explanation of accepted actuarial principles, see NRC Affordability Report 1, pp. 36-38.
27 FEMA defines subsidized premium rates as those charged for a group of policies that results in aggregate premiums
insufficient to pay for anticipated losses and expenses.
28 Flood zones are geographic areas that FEMA has defined according to levels of flood risk and are depicted on a
community’s Flood Insurance Rate Map (FIRM). NFIP flood zones can be divided into three main categories: low- to
moderate-risk areas (B, C, and X zones), high-risk areas (A zones), and high-risk coastal areas (V zones).
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There are three main categories of properties which pay less than full risk-based rates:
 Pre-FIRM: Properties which were built or substantially improved29 before
December 31, 1974, or before FEMA published the first Flood Insurance Rate
Map (FIRM) for their community, whichever was later.30
 Newly mapped: Properties newly mapped into an SFHA on or after April 1,
2015, if the applicant gets flood insurance coverage within a year of the mapping.
 Grandfathered: Properties that were built in compliance with the FIRM which
was in effect at the time of construction.31 FEMA allows owners of such
properties to maintain their old flood insurance rate class if their property is
remapped into a new flood rate class.32
As of September 2018, approximately 13% of NFIP policies received a pre-FIRM subsidy, 4% of
NFIP policies received the newly mapped subsidy, and about 9% of NFIP policies were
grandfathered.33
Fees and Surcharges
In addition to the building and contents premium, NFIP policyholders pay a number of fees and
surcharges mandated by law.
 The Federal Policy Fee (FPF) was authorized by Congress in 1990 and helps
pay for the administrative expenses of the program, including floodplain
mapping and some of the insurance operations.34 The amount of the Federal
Policy Fee is set by FEMA and can increase or decrease year to year. Since
October 2017, the FPF has been $50 for Standard Flood Insurance Policies

29 44 C.F.R. §59.1 defines substantial improvement as any reconstruction, rehabilitation, addition, or other
improvement of a structure, the cost of which exceeds 50% of the market value of the structure before the start of
construction of the improvement.” For additional discussion of substantial improvement, see FEMA, Substantial
Improvement, https://www.fema.gov/node/405414.
30 42 U.S.C. §4015(c).
31 A property can be grandfathered due to a change in its flood zone or a change in its Base Flood Elevation (BFE),
which is defined as the water-surface elevation of the base flood, which is the 1%-annual-chance flood, commonly
called the 100-year flood. The probability is 1% that rising water will reach BFE height in any given year.
32 An example of zone grandfathering would be a property that is initially mapped into a high-risk area (zone A) and is
built to the proper building code and standards, and is later remapped into a higher-risk coastal area (zone V). If the
policyholder has maintained continuous insurance coverage under the NFIP, the owner of this property can pay the
flood insurance premium based on the prior lower-risk flood zone (zone A). Elevation grandfathering occurs when a
new FIRM increases the BFE, but the property itself does not change flood zones.
33 Email correspondence from FEMA Congressional Affairs staff, June 13, 2019. Note that FEMA has not collected
updated information for rating categories since producing the September 2018 numbers.
34 42 U.S.C. §4014(a)(1)(B)(iii).
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(SFIPs), $25 for Preferred Risk Policies (PRPs),35 and $25 for contents-only
policies.36 The FPF is $47 for all NFIP policies written under Risk Rating 2.0.37
 A Reserve Fund Assessment was authorized by Congress in the Biggert-Waters
Flood Insurance Reform Act of 201238 to establish and maintain a reserve fund to
cover future claim and debt expenses, especially those from catastrophic
disasters.39 FEMA charges every NFIP policyholder a reserve fund assessment of
18% of the premium.
 All NFIP policies are also assessed a HFIAA Surcharge40 following the passage
of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA).41 The
amount of the surcharge is dependent on the type of property being insured. For
primary residences, the charge is $25; for all other properties, the charge is
$250.42
 If a community is on probation from the NFIP,43 all policyholders in that
community will be charged a Probation Surcharge of $50 for a full one-year
period, even if the community brings its program into compliance and is removed
from probation.
 Before the introduction of Risk Rating 2.0, FEMA charged a Severe Repetitive
Loss (SRL) Premium of 15% on all SRL properties.44 Revenues from these
surcharges were deposited into the Reserve Fund.45
Currently, the categories of properties which pay less than the full risk-based rate are determined
by the date when the structure was built relative to the date of adoption of the FIRM, rather than
the flood risk or the ability of the policyholder to pay. GAO has suggested in a number of reports

35 A Preferred Risk Policy is a Standard Flood Insurance Policy that offers low-cost coverage to owners and tenants of
eligible buildings located in moderate- and low-risk flood zones in NFIP communities. PRP policies will no longer be
offered under Risk Rating 2.0. See National Flood Services, Risk Rating 2.0: What Is Changing,
https://nationalfloodservices.com/wp-content/uploads/2021/06/Risk-Rating-2.0-What-is-Changing.pdf.
36 See FEMA, Flood Insurance Manual, How to Write, revised October 1, 2022, p. 3-51, https://www.fema.gov/sites/
default/files/documents/fema_nfip-flood-insurance-full-manual_102022.pdf. Note that the FPF is higher for residential
condominium buildings with more than 20 units.
37 See FEMA, Flood Insurance Manual: How to Write, p. 3-50, revised October 1, 2022, https://www.fema.gov/sites/
default/files/documents/fema_nfip-flood-insurance-full-manual_102022.pdf.
38 Title II of P.L. 112-141.
39 The Reserve Fund assessment was authorized by Congress in BW-12 to establish and maintain a Reserve Fund to
cover future claim and debt expenses, especially those from catastrophic disasters (§100212 of P.L. 112-141, 126 Stat.
992, as codified at 42 U.S.C. §4017a).
40 Section 8(a) of P.L. 113-89, 128 Stat. 1023.
41 P.L. 112-141, §100236, 126 Stat. 957; as amended by P.L. 113-89, §16; 128 Stat. 1026.
42 For a description of how the fee is applied to different policy types, see FEMA, The HFIAA Surcharge Fact Sheet,
April 2015, https://www.fema.gov/media-library/assets/documents/105569.
43 A community can be placed on probation by FEMA if it is found that it is failing to adequately enforce the floodplain
management standards it has adopted. A community is given time to rectify FEMA’s concerns regarding their
implementation of the floodplain management standards. Ultimately, if the community does not correct its cited
deficiencies after given time periods described in regulations, the community will be suspended from the NFIP by
FEMA. For additional details on probation, see 44 C.F.R. §59.24(b) and (c).
44 FEMA, April 1, 2021 and January 1, 2022 Program Changes, W-20020, p. 22, https://nfipservices.floodsmart.gov/
sites/default/files/w-20020.pdf.
45 The SRL premium will be incorporated into new premium rates as NFIP policyholders move to Risk Rating 2.0 rates
in 2022 and 2023.
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that linking subsidies to ability to pay rather than the existing approach, by which subsidies are
linked to properties without regard to financial circumstances, would make premium assistance
more transparent and thus more open to oversight by Congress and the public.46
Legislative Reforms to Address NFIP Solvency and Affordability
Competing aspects of the NFIP, particularly the desire to keep flood insurance affordable while
making the program fiscally solvent, have made it challenging to reform the program.47 Different
Administrations and Congresses have placed varied emphases and priorities on affordability or
solvency for premium setting. As these priorities change, the balance between actuarial objectives
(financial soundness and alignment of individual premiums with risk) and encouraging
participation (by keeping premiums affordable and offering subsidies to certain classes of
policyholders) has also changed.48
The tension between solvency and affordability has been illustrated by legislative changes in the
last decade. The Biggert-Waters Flood Insurance Reform Act of 2012 (hereinafter BW-12)49
moved the NFIP in the direction of better aligning policyholders’ premiums with their actual
flood risks by removing or accelerating phaseouts of discounted rates.50 A core principle of BW-
12 was the eventual removal of subsidized policies.51 Following the passage of BW-12,
lawmakers received testimony and letters from constituents of multiple communities expressing
concern that this would result in unreasonably high premiums that would create a financial
burden on policyholders and could cause disruption to communities.
In response to these concerns, Congress passed the Homeowner Flood Insurance Affordability
Act of 2014 (HFIAA),52 which slowed or reversed some changes introduced in BW-12.53 In
particular, HFIAA slowed the rate of phaseout of subsidies for most primary residences, but
retained the pace of the phaseout of the subsidy from BW-12 for business properties and
secondary homes. In addition, HFIAA created a minimum and maximum increase in the amount
for the phaseout of subsidies for all primary residences of 5%-18% annually. This permits
individual property increases of up to 18%, but limits the rate class54 increases to 15% per year.55
In other words, the average annual premium rate increase for primary residences within a single
risk classification rate may not be increased by more than 15% a year, while the individual

46 GAO Solvency, p. 27.
47 GAO Solvency, p. 1.
48 American Academy of Actuaries, The National Flood Insurance Program: Challenges and Solutions, Washington,
DC, September 25, 2019, p. 3, https://www.actuary.org/sites/default/files/2019-09/flood9.19.pdf.
49 Title II of P.L. 112-141.
50 For more information on these changes, see Table 4 in CRS Report R44593, Introduction to the National Flood
Insurance Program (NFIP), by Diane P. Horn and Baird Webel.
51 NRC Affordability Report 1, p. 1.
52 See P.L. 112-141, §100236, 126 Stat. 957; as amended by P.L. 113-89, §16; 128 Stat. 1026.
53 CBO Affordability, p. 4.
54 A single rate class (or risk classification) is a group of properties with the same flood risk classification; for example,
pre-FIRM properties or properties with the newly mapped subsidy.
55 The chargeable risk premium rate for any property may not be increased by more than 18% per year (except in
certain circumstances, which are listed); see 42 U.S.C. §4015(e)(1). The chargeable risk premium may not be increased
by an amount that would result in the average of such rate increases for properties within the risk classification
exceeding 15% of the average of the risk premium rate for properties within the risk classification; see 42 U.S.C.
§4015(e)(3).
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premium rate increase for any individual policy may not be increased by more than 18% each
year.56
Other categories of properties are required to have their premium increased by 25% per year until
they reach full risk-based rates, including (1) nonprimary residences; (2) nonresidential
properties; (3) business properties; (4) properties with severe repetitive loss;57 (5) properties with
substantial cumulative damage;58 and properties with substantial damage59 or substantial
improvement after July 6, 2012. Actuarially sound rates, or full risk-based rates,60 would help
communicate risks to homeowners and could help to ensure the program’s sustainability;
however, for some policyholders this would mean a rate increase that could make premiums
unaffordable or reduce their willingness to purchase flood insurance.61 FEMA is moving toward
charging full risk-based rates for all NFIP policies through the introduction of a new method for
pricing NFIP policies, known as Risk Rating 2.0.
Risk Rating 2.0
Risk Rating 2.0 represents the biggest change to the way the NFIP calculates flood insurance
premiums since its inception. Under Risk Rating 2.0, premiums for individual properties will be
based on their individual flood risk.
Risk Rating 2.0 went into effect on October 1, 2021, for new NFIP policies only. The new rates
for existing policyholders took effect on April 1, 2022. All policies will move to Risk Rating 2.0
pricing when they renew after April 1, 2022.62
Under Risk Rating 2.0, premiums for an individual property are based on that property’s specific
flood risk, as opposed to being placed in a general risk category based on flood zones.63 The
premium is calculated based on the specific features of the property, including structural variables
such as the foundation type of the structure, the height of the lowest floor of the structure relative
to base flood elevation, and the replacement cost value (RCV)64 of the structure. Structures with

56 The percentage increases are based on the current premium (e.g., a 15% annual increase from the prior year
premium), rather than the percentage difference between the current premium and the actuarial rate (i.e., a rate increase
of 25% does not mean the pre-FIRM subsidy is eliminated in four years).
57 Severe repetitive loss properties are those that have incurred four or more claim payments exceeding $5,000 each,
with a cumulative amount of such payments over $20,000; or at least two claims with a cumulative total exceeding the
value of the property. See 42 U.S.C. §4014(h) and 44 C.F.R. §79.2(h).
58 A property with substantial cumulative damage is any property that has incurred flood-related damage in which the
cumulative amounts of payments under the NFIP equaled or exceeded the fair market value of such property. See 42
U.S.C. §4014(a)(2)(C).
59 44 C.F.R. §59.1 defines “substantial damage” as damage of any origin sustained by a structure whereby the cost of
restoring the structure to its before-damaged condition would equal or exceed 50% of the market value of the structure
before the damage occurred. For additional discussion of substantial damage, see FEMA Fact Sheet, NFIP “Substantial
Damage”—What Does It Mean? at https://www.fema.gov/press-release/20210318/fact-sheet-nfip-substantial-damage-
what-does-it-mean-0.
60 FEMA defines full risk-based rates expenses (rates intended to reflect the actual rate of flooding) as those charged to
a group of policies that generate premiums sufficient to pay the group’s anticipated losses and expenses.
61 CBO Affordability, p. 21 and p. 4.
62 FEMA, Risk Rating 2.0: Equity in Action, https://www.fema.gov/flood-insurance/risk-rating.
63 For a more detailed explanation of flood zones, see CRS Report R44593, Introduction to the National Flood
Insurance Program (NFIP), by Diane P. Horn and Baird Webel.
64 Before Risk Rating 2.0, the premium for a property was based on the amount of insurance purchased for a structure
rather than the replacement cost of the structure. In particular, structures whose value are above $250,000 paid less than
they would if their rate was based on the RCV, because their rate was based on an average structure value that is much
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higher replacement costs than current local or national averages should pay more for their NFIP
coverage than structures that are below the average RCV, which should pay less.65
Risk Rating 2.0 also considers geographical variables such as the distance to water, the type and
size of nearest bodies of water, flood frequency, and the elevation of the property relative to the
flooding source. Risk Rating 2.0 also incorporates a broader range of flood frequencies and
sources than the current system; in particular, pluvial flooding (flooding due to heavy rainfall).66
Risk Rating 2.0 will continue the overall policy of phasing out NFIP subsidies that began with
BW-12 and continued with HFIAA, which slowed the rate at which subsidies were phased out for
primary residences. If policyholders are currently paying less than the full risk-based rate for their
property, their premium will increase over time until they reach the actuarial rate for their
property. However, limitations on annual premium increases are set in statute,67 and FEMA
cannot increase rates annually beyond these caps. Although Risk Rating 2.0 will not be allowed to
increase premiums for primary residences more than 18% annually, this will still represent a
larger increase than policyholders have seen in years. Since HFIAA was passed in 2014, rate
increases for primary residences have increased between 6% and 11% per year.68
Nationally, an estimated 77% of policyholders will see an increase in their premiums in the first
year of Risk Rating 2.0, with 23% of policyholders seeing a decrease.69 The impending rate raises
will vary from $120 to $240 or more annually. According to FEMA, 75% of primary residences
would see an increase greater than 18% under Risk Rating 2.0 if the statutory limit did not exist.
FEMA estimates that 50% of policies will be at their full risk rate after five years and after 10
years, 90% of policies will be at their full risk rate.70
As full risk-based premiums are phased in under Risk Rating 2.0, some policyholders could be
faced with large price increases either because they are currently buying coverage at subsidized
rates, or because the new rating system indicates that they now have a higher risk, or both.
Affordability of NFIP Premiums
The introduction of Risk Rating 2.0 has renewed concerns that full risk-based premiums could be
unaffordable for some households and could lead property owners to either purchase lower
amounts of coverage or choose not to purchase flood insurance at all. It has been suggested that
some property owners might not be able to afford to remain in their homes if flood insurance
premiums were too high.71 Such increases raise issues of equity, as well as affordability. Premium
increases under Risk Rating 2.0 may have the greatest effect on low- and moderate-income

less than their actual structure value. For additional discussion of RCV, see CRS Report R45999, National Flood
Insurance Program: The Current Rating Structure and Risk Rating 2.0, by Diane P. Horn.
65 FEMA, Risk Rating 2.0: Equity In Action, https://www.fema.gov/flood-insurance/risk-rating.
66 For additional information about Risk Rating 2.0, see CRS Report R45999, National Flood Insurance Program: The
Current Rating Structure and Risk Rating 2.0, by Diane P. Horn; and CRS Insight IN11777, National Flood Insurance
Program Risk Rating 2.0: Frequently Asked Questions, by Diane P. Horn.
67 42 U.S.C. §4015(e).
68 See Table 1 in CRS Insight IN11777, National Flood Insurance Program Risk Rating 2.0: Frequently Asked
Questions, by Diane P. Horn.
69 FEMA, Risk Rating 2.0—National Rate Analysis, https://www.fema.gov/sites/default/files/documents/fema_risk-
rating-2.0-national-rate-analysis.pdf.
70 Email from FEMA Congressional Affairs staff, April 16, 2021.
71 GAO, Flood Insurance: More Information Needed on Subsidized Properties, GAO-13-607, July 3, 2013, p. 36,
https://www.gao.gov/products/gao-13-607.
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policyholders and communities,72 as well as other potential impacts. For example, if homeowners
and renters drop their insurance because of affordability issues, it may affect their ability to
receive FEMA disaster assistance, for which they are required to obtain and maintain flood
insurance. In addition, there may be locations where premium increases have adverse effects on a
community as a whole if premiums increase for a large number of residents. For example, higher
flood insurance rates could affect property values and the ability of property owners to sell their
properties if potential buyers decide not to purchase a home in a high-risk area after determining
the cost of flood insurance for the property.73
Higher premiums could potentially prevent achievement of the long-standing program objective
of increasing the number of properties covered by flood insurance.74 If NFIP policyholders were
to cancel their policies, the federal government could face increased costs in the form of FEMA
disaster assistance to these households.75
Options to Reduce the Cost Burden on
NFIP Policyholders
An ongoing area of congressional interest is how to reduce the cost burden of an individual NFIP
policy.76 Congress may consider several broad policy options which could reduce the cost of
flood insurance to all policyholders through a variety of reforms to the structure of the NFIP.
GAO noted that these options are not mutually exclusive and could potentially be combined,
depending on the policy priorities of Congress; however, the options all involve trade-offs and
implementing any of them would likely be challenging.77
Congress could consider actions that would
 reduce the amount that policyholders pay through the introduction of a mean-
tested affordability program;
 reduce the amount that individual policyholders pay by increasing participation
in the NFIP, which could distribute program costs among a larger insured
population;
 increase income to the NFIP, which could be used to reduce policyholders’
contributions to the costs of the program;
 reduce the NFIP debt and thus the amount that policyholders pay in interest on
the debt; or
 increase mitigation activities, which may reduce flood damages and thus flood
claims, which could reduce the amount that policyholders have to pay for claims.

72 See, for example, U.S. Congress, House Committee on Homeland Security, Hearing on Ensuring Equity in Disaster
Preparedness, Response, and Recovery, Hearing Testimony of Chauncia Willis, Chief Executive Officer, Institute for
Diversity and Inclusion in Emergency Management, 117th Cong., 1st sess., October 27, 2021, pp. 2-6,
https://homeland.house.gov/imo/media/doc/2021-10-27-HRG-Testimony-Willis.pdf.
73 GAO, Overview of GAO’s Past Work on the National Flood Insurance Program, GAO-14-297R, April 9, 2014, p.
20, https://www.gao.gov/products/GAO-14-297R.
74 NRC Affordability Report 1, p. 2.
75 NRC Affordability Report 1, p. 64.
76 GAO Solvency, p. 24.
77 GAO Solvency, p. 10.
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This report identifies potential options in the above categories that could lead to reductions in the
amount that NFIP policyholders have to pay.
Introduce a Means-Tested Affordability Program
Assistance through an affordability program could offset part or all of the cost of insurance
through a number of approaches, which differ in the ways to measure when a premium might
impose a cost burden on a policyholder. There are no objective definitions of affordability for
flood insurance, nor are there objective thresholds to define “affordable” premiums either for an
individual property owner or renter, or for any group of property owners or renters.78 Although a
lower insurance premium clearly is more affordable than a higher one, there is no objective
threshold that separates affordable premiums from unaffordable premiums. The threshold for
defining when an insurance program creates a cost burden requires making a policy judgment.79
For example, GAO estimated that 47%-74% of policyholders could be eligible for subsidies if
income eligibility was set at 80% or 140% of area median income (AMI), respectively.80
Policymakers will need to select which measure(s) will be used to target assistance to make flood
insurance more affordable. They will also need to consider who will receive such assistance (e.g.,
only homeowners or also renters, only existing policyholders or also households that purchase
flood insurance after the affordability program has begun). For example, if households without
current NFIP insurance, who may have been deterred from buying insurance because of the cost,
were not able to participate in an affordability program, it might exclude eligible low-income
households. This could potentially raise questions of equity.
GAO has suggested in a number of reports that an affordability program that addresses the goals
of encouraging consumer participation and promoting resilience could provide means-tested
assistance through appropriations rather than through discounted premiums, and prioritize
mitigation to reduce risk.81 Such programs may differ in how to measure when a premium might
impose a cost burden on a policyholder. Means-tested affordability assistance could be in the
form of a capped-premiums approach, an income-based approach, a housing-burden-based
approach, a combined income- and housing burden-based approach, and a community
characteristics approach.
In May 2022, FEMA submitted 17 legislative proposals to Congress outlining multiple reforms
and actions to consider to reform the NFIP. One of these proposals was for a mean-tested
assistance program to offer low- and moderate-income current and prospective policyholders a
graduated premium discount.82
Options for a Means-Tested Affordability Program
1. Target premium discounts or subsidies to qualifying households. NFIP subsidies are
currently tied to a property. Implementing a means-tested approach could decouple the
subsidy from the property and instead attach it to the policyholder or group of policyholders

78 NRC Affordability Report 1, p. 80.
79 NRC Affordability Report 1, pp. 79-80.
80 GAO Affordability Assistance, pp. 22-23.
81 GAO Solvency, p. 27.
82 FEMA, Legislative Proposals for the National Flood Insurance Program, https://www.fema.gov/sites/default/files/
documents/fema_flood-insurance-reform-proposal_5242022.pdf.
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on the basis of financial need.83 This could take the form of discounted rates or vouchers,
where policyholders would be charged a full-risk premium but would receive a subsidy to
cover the difference between what they are deemed able to pay and the full-risk rate
premium. Policymakers might also choose to target assistance to households that are flood
insurance cost-burdened and are required to purchase flood insurance. However,
policyholders will also need to decide which properties are considered when determining a
household’s eligibility; for example, assistance could be limited to primary residences.84
a. Capped premiums approach. Under a capped premium approach, a flood insurance
premium is defined as unaffordable if it is greater than a specified percentage of the
coverage of the policy.85 For example, HFIAA directed FEMA to strive to minimize the
number of policies with annual premiums that exceed 1% of the total coverage provided
by the policy.86 A capped premium approach does not consider policyholders’ resources
and other expenses, and this option could provide subsidies to households which may not
have financial need.87
b. Income-based approach. An income-based approach to affordability assumes that
flood insurance imposes a cost burden and thus is unaffordable for any household whose
income is below a specified threshold. That standard could be based on median income
for the area or federal poverty guidelines, or other criteria. For example, to be eligible for
certain federal housing programs, individual households must meet specific income limits
expressed as a percentage of the area median income (AMI).88 An NFIP affordability
program based on individuals’ or households’ income could use similar measures.89
Means testing would add administrative complexity to the NFIP, but could be designed
similarly to existing means-tested programs offered by the federal government.90 Under
an income-based approach, lower-income households would be responsible for paying for
a portion of the premium, with FEMA covering the remainder of the premium amount. As
household income levels rise, the portion of the premium that would be covered by
FEMA would decrease.91 FEMA noted that such a program would be relatively
straightforward to implement; however, it could also provide benefits to households for
which flood insurance is not unaffordable (e.g., households with low incomes but
substantial assets).92
c. Housing burden-based approach. A housing cost approach considers not only a
household’s income but also housing costs, and assesses the ratio of housing costs to
income when the NFIP premium is added to other housing costs. Under this approach,

83 GAO Affordability Assistance, p. 11.
84 Different options for an NFIP affordability program are discussed in more detail in “Introduce a Means-Tested
Affordability Program.”
85 NRC Affordability Report 1, p. 81.
86 42 U.S.C. §4015(j).
87 GAO Affordability Assistance, p. 18.
88 See Department of Housing and Urban Development, Methodology for Calculating FY2020 Medians,
https://www.huduser.gov/portal/datasets/il/il20/Medians-Methodology-FY20r.pdf.
89 GAO Affordability Assistance, p. 12.
90 GAO Affordability Assistance, pp. 11-15.
91 FEMA, An Affordability Framework for the National Flood Insurance Program, 2018 (hereinafter FEMA
Affordability Framework), p. 6, https://www.fema.gov/media-library/assets/documents/163171.
92 FEMA Affordability Framework, p. 26.
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policymakers would have to select (or delegate selection of) a threshold, usually
expressed as a percentage, at which the ratio of housing costs to income is judged to
become unaffordable. One way to identify housing burden is through the use of the PITI
ratio: the ratio of mortgage principal and interest (PI), property taxes (T), and insurance
(I), including flood insurance, to household income. A comparable measure of housing
burden for renters is the ratio of rent plus insurance to household income.93 Previous
work has shown that the PITI ratio is highly correlated with household income, so a
program basing eligibility on the PITI ratio may effectively target lower-income
households.94
FEMA suggested in its Affordability Framework that it would consider flood insurance
unaffordable if flood insurance causes the ratio of PITI to income to exceed 0.3 to 0.4,
cutoffs that are taken from both HUD and private mortgage industry standards.95 Based
on an analysis of linked NFIP policy data and household income and Census Bureau
American Community Survey (ACS) housing cost data,96 FEMA found that the PITI ratio
exceeded 0.4 for approximately 12% of homeowners with flood insurance policies in
SFHAs.97 FEMA’s analysis found that the PITI ratio for renters (defined as gross rent
over income) is higher than those for homeowners, with 33% of renters inside SFHAs
and 27% of renters outside SFHAs with a PITI ratio over 0.47, and concluded that by this
definition, flood insurance is unaffordable for a substantial percentage of renters.98
The housing cost burden approach might create some potentially perverse incentives by
providing larger benefits for households potentially overextended on housing costs, and
smaller benefits for households who were more frugal in making their choices. This
approach may also miss some households that may be of concern to policymakers and
could potentially steer benefits away from some low-income policyholders. For example,
a household without a mortgage may have a low income but also a low PITI ratio and
thus would be ineligible for assistance under this approach. In particular, it may not
provide benefits to retirees who have paid off their mortgages or low-income households
that have inherited a property mortgage-free. In general, households with access to credit
would be more likely to qualify for assistance through the mortgage component of the
PITI-ratio.
Another concern with a PITI-based approach is that households in regions with high costs
of living (and mortgage payments) might be more likely to benefit from the program than
households in regions with lower costs of living.99 In addition, households would need to
provide data on income and housing expenses, which may cause administrative burdens
for both the policyholders to provide and FEMA to verify the data.
d. Income and housing burden-based approach. The FEMA affordability framework
also considered an approach where benefits are targeted at households that are both

93 FEMA Affordability Framework, p. 15.
94 Lloyd Dixon, Noreen Clancy, Benjamin M. Miller, et al., The Cost and Affordability of Flood Insurance in New York
City: Economic Impacts of Rising Premiums and Policy Options for One- to Four- Family Homes, Rand Corporation,
RAND RR1776, Santa Monica, CA, April 2017, pp. 25-26, https://www.rand.org/pubs/research_reports/RR1776.html.
95 FEMA Affordability Framework, p. 15.
96 United States Census Bureau, American Community Survey (ACS), https://www.census.gov/programs-surveys/acs.
97 FEMA Affordability Framework, p. 6.
98 FEMA Affordability Framework, pp. 16-18.
99 FEMA Affordability Framework, p. 31.
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income- and housing-burdened (which it noted is similar to HUD’s Section 8 rental
housing assistance program). It used the thresholds of 120% of AMI and housing burdens
above 40% of income.100
2. Target premium discounts or subsidies based on community characteristics. Rather
than determine eligibility for affordability assistance based on characteristics of individual
households, community characteristics could be considered as eligibility criteria.101 For
example, policyholders could make all households in a community eligible for assistance if a
specified percentage of them would likely be eligible on the basis of their individual
characteristics. Alternatively, all homeowners in a community could be considered eligible
for assistance if the community’s poverty rate is sufficiently high or the median income is
sufficiently low.102 This could reduce administrative costs by removing the need to establish
eligibility of every household. Another potential eligibility criterion could be the engagement
of state and local governments in certain mitigation activities.103 However, because this
option does not consider financial need, some policyholders who do not face an affordability
issue with their flood insurance premiums may receive assistance, while policyholders who
have affordability issues but do not live in an eligible community would not receive
assistance.104
3. Require recipients of affordability assistance to invest in FEMA-approved cost-
effective mitigation measures. For example, property owners could receive grants or loans
to help mitigate their flood risk and be charged a premium rate that reflects their lower risk.
Another option could be to offer a multiyear loan that could cover both mitigation measures
and the annual loan cost.105 Vouchers could also be used to help policyholders cover the cost
of repaying mitigation loans.106 This approach could potentially be targeted at properties that
are most costly to the NFIP, such as repetitive loss107 (RL) and severe repetitive loss (SRL)
properties.
The Build Back Better Act,108 as passed by the House on November 19, 2021, would have
appropriated $600 million, to remain available until the end of FY2026, for a means-tested
affordability program to provide assistance in the form of graduated discounts for insurance costs
for covered properties. NFIP policyholders with a household income not more than 120% of AMI
would have been eligible to participate in the program. Covered properties were defined as
primary residences for structures with one to four families, and primary residences of renters. The
affordability assistance would have provided a discount on all premiums, fees, and surcharges.

100 FEMA Affordability Framework, p. 29.
101 For example, this could potentially make use of FEMA’s National Risk Index, which combines a community’s
hazard risk, social vulnerability, and resilience to calculate a relative risk assessment. See FEMA, National Risk Index
for Natural Hazards (NRI), https://www.fema.gov/flood-maps/products-tools/national-risk-index.
102 NRC Affordability Report 1, p. 95.
103 NRC Affordability Report 1, p. 90.
104 GAO Affordability Assistance, p. 17.
105 Howard Kunreuther, “Improving the National Flood Insurance Program,” Behavioural Public Policy, July 9, 2018,
pp. 1-15.
106 GAO Affordability Assistance, p. 46.
107 The statutory definition of a repetitive loss structure is a structure covered by a contract for flood insurance that (a)
has incurred flood-related damage on two occasions, in which the cost of repair, on the average, equaled or exceeded
25% of the value of the structure at the time of each such flood event; and (b) at the time of the second incidence of
flood-related damage, the contract for flood insurance contains increased cost of compliance coverage. See 42 U.S.C.
§4121(a)(7).
108 H.R. 5376, as passed by the House on November 19, 2021.
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Reduce the Amount That Policyholders Pay to the NFIP
A means-tested affordability program is only one possible way of reducing the cost burden to
policyholders, and Congress could consider other changes to the NFIP to reduce the amount that
policyholders pay.
Options to Reduce the Amount That Policyholders Pay to the NFIP
4. Reduce cross-subsidies. Cross-subsidies are being phased out under Risk Rating 2.0.
This should reduce premiums for policyholders who are paying more to cross-subsidize other
policyholders. However, premiums for properties that are currently subsidized are expected to
increase as cross-subsidies are reduced. Alternatively, the income to the NFIP will be reduced
if the costs that are currently cross-subsidized are not passed on to other policyholders.
5. Reduce or eliminate fees or surcharges paid by NFIP policyholders. This would
reduce flood insurance premiums but would also reduce income to the NFIP. Reduced fees
and surcharges might encourage additional participation in the NFIP. However, FEMA does
not have authority to eliminate all of these; elimination of some fees and surcharges109 would
require action by Congress.
6. Reduce premiums or increase subsidies. This could reduce the amount that
policyholders pay to the NFIP but would also reduce income to the program unless Congress
were to provide additional funding for the NFIP. In addition, increasing subsidies would run
counter to the principles established by FEMA for Risk Rating 2.0.
7. Eliminate the mandatory purchase requirement. If the purchase of flood insurance
were voluntary, those who could not afford NFIP premiums would not have to incur the
expense. However, it is likely that take-up rates for NFIP policies would drop substantially if
homeowners were not required to purchase flood insurance.110 As a result, households would
need to rely on their own financial resources or federal assistance for post-flood recovery. In
addition, the presence of uninsured properties may reduce the resilience of a community more
generally after a flood and may necessitate additional disaster assistance from the federal
government.
8. Allow higher deductibles on NFIP policies. The maximum deductible is currently
$1,250 if the building coverage amount exceeds $100,000. Otherwise, the deductible is
$1,000.111 Congress could increase the maximum deductible or FEMA could encourage
policyholders to choose a larger deductible.112 According to FEMA, increasing the deductible
to the maximum amount could reduce NFIP premiums by 40%.113 However, although higher
deductibles could decrease premium payments, in the event of a flood they might impose
hardships on people. This could be a particular problem for low-income households who
must pay for damage below the deductible amount, and could lead to an increase in demand
for federal disaster assistance.

109 For example, the Federal Policy Fee, Reserve Fund Assessment, and the HFIAA surcharge.
110 NRC Affordability Report 1, p. 113.
111 FEMA, Flood Insurance Manual, 3. How to Write, p. 3-42, revised October 1, 2022, https://www.fema.gov/sites/
default/files/documents/fema_nfip-flood-insurance-full-manual_102022.pdf.
112 CBO Affordability, p. 26.
113 FEMA, Help Clients Pay Less for Flood Insurance, https://agents.floodsmart.gov/retention/costs.
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9. Cap the rate at which NFIP premiums could increase. The current maximum rate of
allowable increase was set in HFIAA, with maximum rate increases for primary residences
limited to 5%-18% per year. Premiums on other categories of properties can be increased at
25% annually.114 Congress could set a lower cap on the rate at which premiums can be
increased.115
10. Cap NFIP premiums. This could establish a ceiling beyond which premiums could not
increase, and thus could help lower premiums of policyholders whose premiums are
increasing.116 However, this approach does not consider policyholders’ income, assets, or
other expenses and therefore does not necessarily take financial need into account.
11. Allow communities to pay all or part of flood insurance premiums for their
residents. Community payment of individual policyholders’ flood insurance premiums could
shift the issue of affordability to the local level and allow each community to address it in the
way that it sees fit. For example, a community could cross-subsidize the assessment of
premiums, or use other community funds to offset high premiums for low-income or
moderate-income households. A community could also recover all or part of the costs through
measures such as special assessments levied on covered properties.
Increase NFIP Participation
A long-standing objective of the NFIP has been to increase purchases of flood insurance policies,
and this objective was one motivation for keeping NFIP premiums affordable when the program
was established.117 In designing the NFIP to help address floodplain management objectives,
Congress has generally emphasized the need for high policy take-up rates.118 Adding new
policyholders, however, would not improve the finances of the NFIP unless the new policies
increase receipts more than they increase expected claims and other expenses.119 GAO has noted
that increased consumer participation could increase the size and scope of the NFIP and
potentially increase federal fiscal exposure. However, it suggested, this could be reduced by
implementing full-risk rates and balanced by an increasing number of lower-risk properties.120
The Mandatory Purchase Requirement
Over time, the desire to increase take-up rates has led to a number of program changes, including
the introduction of the mandatory purchase requirement (MPR). In a community that participates
or has participated in the NFIP, owners of properties in the mapped SFHA are required to
purchase flood insurance as a condition of receiving a federally backed mortgage. Under the
MPR, federally backed or regulated lenders require borrowers to purchase and maintain a flood
insurance policy when they provide a mortgage to properties in the SFHA. The MPR is enforced

114 See the section of this report on “Risk Rating 2.0” for further information on the rates at which premiums can be
increased.
115 For example, S. 3128 and H.R. 5802 in the 117th Congress would cap annual premium increases at 9%.
116 In the first year of Risk Rating 2.0, FEMA has capped the annual premium for a single-family primary residence at
$12,125. Some of these properties have previously been paying as much as $45,925. This represents the first time that a
dollar cap has been applied to the NFIP. FEMA, Briefing on Risk Rating 2.0 for CRS, March 29, 2021.
117 See 82 Stat. 577 for text in the original statute (Section 1308(b)(2) of P.L. 90-448). This language remains in statute;
see 42 U.S.C. §4015(b)(2).
118 NRC Affordability Report 1, p. 31.
119 CBO Affordability, p. 24.
120 GAO Solvency, p. 33.
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by lenders rather than FEMA, and FEMA does not have authority to enforce lender compliance
with the MPR.121 At least 10 federal entities oversee lenders’ compliance.122
Compliance with the MPR directly affects the number of properties that have flood insurance,
although the full extent of noncompliance with the MPR is not known.123 However, NFIP take-up
rates for flood insurance are generally low, even in areas subject to the MPR,124 and policies may
not be maintained after purchase. For example, GAO found that about 28% of properties that
were purchased in 2014 no longer had an NFIP policy by 2019.125
There is a large flood insurance gap in the United States, and many people that are exposed to
flood risk are not covered by flood insurance. Currently the NFIP insures about 4.985 million
structures in the United States,126 and most of the remaining structures have no insurance to
protect them from flood risk.127 NFIP residential policies are nearly evenly divided between areas
inside and outside the SFHA, but the majority of nonresidential policies are inside the SFHA.
This is relevant to flood insurance affordability because flood insurance premiums are generally
higher in SHFAs.128 Expanding the MPR could increase premiums and create affordability
concerns that could warrant having an affordability assistance program.129
In addition to the risk of uninsured losses to individual households and businesses, the NFIP
could achieve greater financial stability with a wider policy base; in particular, through finding
ways to increase coverage outside the SFHA. According to the American Academy of Actuaries,
increasing the number of properties covered for flood, particularly in lower-risk areas, will not
only protect consumers, lending institutions, and local communities, but will also improve the
financial stability of the NFIP by achieving a better spread of risk.130
Options to Increase NFIP Participation
12. Ensure full compliance with the mandatory purchase requirement. This option would
require lenders to ensure that all mortgagees subject to the MPR purchase and maintain flood
insurance. GAO’s view is that measuring compliance with the MPR would require property-
specific data on mortgage, flood zone determinations, and flood insurance policies compiled
at loan origination and at various points during the life of the loan. GAO noted that this
would entail establishing reporting requirements on lenders to provide relevant mortgage
data, determining an appropriate authority to receive and compare these data, and
determining the costs and benefits of obtaining these data.131 In a recent report, GAO

121 GAO, GAO Mandatory Purchase Requirement, p. 9.
122 GAO Mandatory Purchase Requirement, p. 4 and p. 10.
123 GAO Mandatory Purchase Requirement, p. 35 and p. 45.
124 Carolyn Kousky, Howard Kunreuther, Michael LaCour-Little, et al., “Flood Risk and the U.S. Housing Market,”
Journal of Housing Research, vol. 29, no. S.1 (November 30, 2020), pp. S3-S24.
125 GAO Mandatory Purchase Requirement, p. 32.
126 FEMA, Watermark, FY2021, Third Quarter, https://www.fema.gov/sites/default/files/documents/fema_fima-
watermark-FY2021-Q3.pdf.
127 American Academy of Actuaries, The National Flood Insurance Program: Challenges and Solutions, Washington,
DC, September 25, 2019, p. 4, https://www.actuary.org/sites/default/files/2019-09/flood9.19.pdf.
128 FEMA Affordability Framework, p. 8.
129 FEMA Affordability Framework, p. 43.
130 American Academy of Actuaries, The National Flood Insurance Program: Challenges and Solutions, Washington,
DC, September 25, 2019, p. 82, https://www.actuary.org/sites/default/files/2019-09/flood9.19.pdf.
131 GAO, Flood Insurance: Extent of Noncompliance with Purchase Requirements Is Unknown, GAO-02-39-6, June
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described challenges to understanding the full extent of noncompliance with the MPR.132
Given the absence of a full understanding of compliance with the MPR, GAO suggested that
there were a number of actions that FEMA could take, despite FEMA’s limited statutory role
related to the MPR, to examine trends and patterns related to consumer participation and
potential noncompliance. Policy and claims data could be used to develop strategies for
addressing noncompliance. For example, GAO recommended that FEMA could review its
own data to identify patterns and trends and to develop policies for addressing
noncompliance. In particular, an analysis of NFIP policy data could provide information on
how long NFIP policies are maintained over time and when flood insurance policies are
dropped. Further, an examination of the number and cost of claims associated with the
policies that were dropped could help FEMA to understand some of the financial effects that
noncompliance may be having on both consumers and the federal government. Finally,
analysis of FEMA’s policy data could provide information on the effectiveness of changes to
the MPR, such as escrow requirements, in ensuring policies are maintained for the life of
mortgage loans.133
13. Require policyholders subject to the MPR to opt out rather than opt in. Research in
behavioral economics has found that, in many circumstances, individuals tend to stay with
default options. It has been suggested that coupling flood insurance to homeowners’
insurance as a default, while still giving individuals the option to decline coverage (opt out) if
not required by the lender, might lead more people to purchase flood insurance.134
14. Offer multiyear flood insurance policies. The tendency to maintain the status quo is
thought to increase the likelihood that insured individuals will maintain a multiyear policy for
the length of the contract, whereas they may decide not to renew an annual policy after it
expires.135
15. Expand the MPR to all structures with federally backed mortgages in NFIP
communities, not just those in the SFHA. Both GAO and FEMA have suggested that the
MPR could potentially be expanded to more (or all) mortgage loans made by federally
regulated lending institutions for properties in communities participating in the NFIP. This
would increase the consumer participation rate in the NFIP and potentially balance the NFIP
portfolio with an increased number of lower-risk properties.136 According to GAO, some
private insurers have indicated that such a federal mandate could help achieve the level of
consumer participation necessary to make the private sector comfortable with providing flood
insurance coverage by increasing the number of policyholders, which would allow private
insurers to diversify and manage the risk of their flood insurance portfolio and address
concerns about adverse selection.137 This would require congressional action to change the
provision in the National Flood Insurance Act of 1968 that links the purchase of flood

21, 2002, p. 4, https://www.gao.gov/products/GAO-02-396.
132 GAO Mandatory Purchase Requirement, p. 29.
133 GAO Mandatory Purchase Requirement, pp. 31-32.
134 Carolyn Kousky, Brett Lingle, Howard Kunreuther, et al., Moving the Needle on Closing the Flood Insurance Gap,
Wharton Risk Management and Decision Processes Center, Issue Brief, Philadelphia, PA, February 13, 2019, p. 2,
https://riskcenter.wharton.upenn.edu/wp-content/uploads/2019/02/Moving-the-Needle-on-Closing-the-Flood-
Insurance-Gap.pdf.
135 NRC Affordability Report 1, p. 62.
136 GAO Solvency, p. 29 and p. 33.
137 GAO, Flood Insurance: Strategies for Increasing Private Sector Involvement, GAO-47-127, January 2014, p. 23,
https://www.gao.gov/products/GAO-14-127.
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insurance to financial assistance.138 Congressional action would not be needed to change the
definition of an “area having special flood hazards,” which is only defined in regulation139
rather than in statute. This option would also require lenders to enforce the expanded MPR.
16. Expand the MPR to all structures in the SFHA, not just those with federally backed
mortgages. The Association of State Floodplain Managers suggested that all properties
within the SFHA should be required to have flood insurance, not just those with federally
backed mortgages.140 This would require every homeowner and business mapped into the
SFHA to purchase flood insurance, whether or not they have a mortgage. This would require
congressional action to change the provision in the NFIA that links the purchase of flood
insurance to financial assistance in any area identified by the FEMA administrator as an area
having special flood hazards.141 This option would also require lenders to enforce the
expanded MPR, or require the introduction of another method of enforcement.
17. Require all structures in the floodplain (both the 1%-annual-chance floodplain and
the 0.2%-annual-chance floodplain) to purchase flood insurance. This would require all
structures in the wider floodplain to purchase flood insurance. Currently, properties outside
the SFHA are not required to purchase flood insurance but may voluntarily purchase a lower-
cost NFIP policy. According to FEMA, on average about 40% of NFIP claims come from
properties outside the SFHA.142
18. Base the MPR on property-level expected damages instead of the boundary of the
SFHA. This approach could, for example, require the purchase of flood insurance for any
properties with expected losses above a defined amount.
19. Offer community flood insurance policies. A community insurance option would allow
a community to purchase a group flood insurance policy on behalf of all properties that are at
risk of flooding. The community would pay a single premium for the group policy.
Community insurance would increase take-up rates by automatically insuring all members of
a participating community. This could potentially exacerbate affordability problems by
forcing all members of a community to pay flood insurance premiums. However, if Congress
believes that community flood insurance should be encouraged, it could choose to provide
funds in order to offer discounted premiums, or to offer coverage to all properties in both the
1%-annual-chance floodplain and the 0.2%-annual-chance floodplain in order to promote
resilience.143
20. Require all homeowners and businesses that receive disaster assistance for flood
damage to obtain and maintain flood insurance. This requirement is already in place for
properties that receive FEMA Public Assistance, FEMA Individuals and Households Program
assistance, and Small Business Administration Disaster Loans. Recipients of funding from
these programs are required to obtain and maintain flood insurance as a condition of

138 42 U.S.C. §4012a(a).
139 44 C.F.R. §59.1.
140 Association of State Floodplain Managers, Inc., Rethinking the NFIP, ASFPM Comments on NFIP Reform, January
11, 2011, p. 5, http://www.floods.org/ace-files/documentlibrary/National_Policy/
Rethinking_the_NFIP_Comments_from_ASFPM_1-11-11.pdf.
141 42 U.S.C. §4012a(a).
142 FEMA, Answers to Questions About the NFIP, p. 51, https://agents.floodsmart.gov/sites/default/files/fema-answers-
to-questions-about-the-NFIP.pdf.
143 See, for example, Carolyn Kousky and Leonard Shabman, A Proposed Design for Community Flood Insurance,
Resources For the Future, Washington, DC, December 2015, pp. 21-23, https://media.rff.org/archive/files/document/
file/RFF-Rpt-KouskyShabman-CommunityFloodIns.pdf.
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receiving future disaster assistance for a flood event, or forfeit future disaster assistance for
flooding. Similar requirements could be introduced for all residential and commercial
properties that receive disaster assistance for flooding.
Increase NFIP Income
The NFIP is different from other disaster assistance in that it is not directly funded by taxpayers.
The majority of the NFIP’s income is provided by policyholders’ premiums, fees, and surcharges,
which are used to pay claims for covered flood damages. In addition, there are charges added to
the premium to cover the administrative costs of the program, including claims handling by
private insurers, and to build up a financial reserve to cover catastrophic-loss years. As the NFIP
currently operates, rates for full risk-based policies are intended to cover the expected cost
associated with all potential flood events, including less likely, high-cost events.144
The NFIP has three sources of funding: (1) premiums, fees, and surcharges from NFIP
policyholders; (2) annual appropriations for some of the costs of flood mapping; and (3)
borrowing from the U.S. Treasury when the balance of the National Flood Insurance Fund (NFIF)
has been insufficient to pay claims. The only continuing direct appropriations to the NFIP are to
supplement floodplain mapping activities; the remainder of flood mapping costs are paid by NFIP
policyholders through the Federal Policy Fee (FPF). According to FEMA, in FY2020, 36.4% of
spending on flood mapping came from the FPF and 63.6% from appropriations.145 In recent years,
appropriations to the NFIP for flood mapping have varied between $100 million and $275.5
million, an amount that represented 2.1% to 5.8% of the NFIP’s income. These appropriations
amounted to $1.79 billion between FY2015 and FY2021.146
In contrast, for example, the federal crop insurance program has permanent, indefinite funding
authority: annual funding comes from both mandatory and discretionary appropriations.147 The
average cost of the program is projected at nearly $8 billion per year for FY2021 to FY2025 and
to remain around that level for FY2026 to FY2030.148 On average, the federal government pays
roughly 60% of agricultural producers’ insurance premiums.149 CBO projects that the federal crop
insurance program will cost almost $40 billion for the five-year period FY2021 to FY2025 and
more than $80 billion for the 10-year period FY2021 to FY2030.150
Because close to 95% of the NFIP’s costs are borne by policyholders, anything that increases
NFIP income from sources other than policyholders, or that reduces NFIP costs paid by
policyholders, ultimately reduces the amount that NFIP policyholders have to pay. In addition to
paying NFIP claims, policyholders also pay the costs of many noninsurance activities in the
public interest, such as flood mitigation grants and floodplain mapping and management.151 The

144 CBO Affordability, p. 26.
145 Email from FEMA Congressional Affairs staff, January 25, 2021.
146 See Table 5 in CRS Report R44593, Introduction to the National Flood Insurance Program (NFIP), by Diane P.
Horn and Baird Webel.
147 For more information, see CRS Report R46686, Federal Crop Insurance: A Primer, by Stephanie Rosch.
148 Ibid., pp. 3-4.
149 CBO, USDA Mandatory Farm Programs—CBO’s Baseline as of March 6, 2020, March 19, 2020, p. 1,
https://www.cbo.gov/system/files/2020-03/51317-2020-03-usda.pdf.
150 Ibid., p. 24.
151 For example, in FY2022 NFIP policyholders paid $199 million for floodplain management and flood mapping and
$175 million on flood mitigation assistance. See Table 5 in CRS Report R44593, Introduction to the National Flood
Insurance Program (NFIP), by Diane P. Horn and Baird Webel.
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benefits of such tasks are not directly measured in the NFIP’s financial results from underwriting
flood insurance.152 One way to reduce NFIP policyholders’ cost burden would be for the federal
government to pay some of the costs that are currently paid for by NFIP policyholders.153 CBO
noted that, like debt service, mapping and mitigation costs are not related to current NFIP
policies, and suggested that Congress could shift those costs to taxpayers by funding those
activities out of general revenue.154
Options to Increase NFIP Income
21. Charge actuarially sound rates for all policies and/or increase fees and surcharges.
Subsidies are being phased out under Risk Rating 2.0, but further reform of the rating system
could be considered. This could be done by eliminating all subsidies or increasing the rate at
which subsidies are phased out. Policyholders who are cross-subsidizing other policies could
benefit from this. However, as long as the NFIP is primarily funded by policyholders, such an
action could increase premiums for other policyholders.
22. Reduce the number of Repetitive Loss and Severe Repetitive Loss properties. To the
extent that other NFIP policyholders are subsidizing RL and SRL properties, reducing the
number of such properties, either through mitigation or other means, could reduce the cross-
subsidy paid by other NFIP policyholders and thus their premiums.
23. Prioritize sales of policies that are more likely to contribute to a net surplus. CBO
has suggested that FEMA could be directed to increase its marketing and publicity efforts,
and to prioritize sales of particular types of policies; for example, commercial and
nonresidential properties that pay a higher HFIAA surcharge.155 CBO noted that the success
of such an approach would depend on FEMA’s ability to target the growth in policies.156
24. Increase appropriations to the NFIP. The only direct annual appropriations for the
NFIP are for a portion of the costs of the mapping and risk analysis program. Congress could
appropriate additional funding to the NFIP, which would reduce the amount that
policyholders would have to pay to cover the costs of the program.157
Reduce NFIP Debt
The NFIP was not designed to retain funding to cover claims for truly extreme events; instead, the
National Flood Insurance Act of 1968 allows the program to borrow money from the Treasury for
such events. For most of the NFIP’s history, the program has generally been able to cover its
costs, borrowing relatively small amounts from the Treasury to pay claims and then repaying the
loans with interest. Currently, Congress has authorized FEMA to borrow no more than $30.425

152 American Academy of Actuaries Flood Insurance Work Group, The National Flood Insurance Program:
Challenges and Solutions, April 2017, p. 79, http://www.actuary.org/files/publications/FloodMonograph.04192017.pdf.
153 The Infrastructure Investment and Jobs Act (IIJA), P.L. 117-58, in appropriated $3.5 billion for the Flood Mitigation
Assistance (FMA) grant program, with $700 million for each of FY2022 to FY2026. NFIP policyholders contributed an
additional $100 million towards the FMA program in FY2022. See Department of Homeland Security (DHS), Notice of
Funding Opportunity (NOFO), Fiscal Year 2022 Flood Mitigation Assistance, August 5, 2022, p. 6,
https://www.fema.gov/sites/default/files/documents/fema_fy22-fma-nofo_08052022_0.pdf.
154 CBO Affordability, p. 26.
155 For information on the HFIAA surcharge, see the section in this report on “Fees and Surcharges.”
156 CBO Affordability, p. 24.
157 See the discussion of the Infrastructure Investment and Jobs Act, P.L. 117-58, in point 36 in the section of this
report on “Options to Encourage Community-Level Flood Risk Reduction Measures.”
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billion from the U.S. Treasury to operate the NFIP.158 The NFIP currently has $9.9 billion of
remaining borrowing authority.159
The NFIP was forced to borrow heavily to pay claims in the aftermath of three catastrophic flood
seasons—the 2005 hurricane season (particularly Hurricanes Katrina, Rita, and Wilma),
Hurricane Sandy in 2012, and the 2017 hurricane season (Hurricanes Harvey, Irma, and Maria).160
On October 26, 2017, Congress cancelled $16 billion of NFIP debt, making it possible for the
program to pay claims for Hurricanes Harvey, Irma, and Maria.161 This represents the first time
that NFIP debt has been cancelled. The NFIP has not borrowed from the Treasury since
November 2017.
Only current and future participants in the NFIP are responsible for repaying NFIP debt, as the
insurance program itself owes the debt to the Treasury and pays for accruing interest on that debt
through the premium revenues of policyholders. Under its current authorization, the only means
the NFIP has to pay off the debt is through the accrual of premium revenues in excess of outgoing
claims, and from payments made out of the Reserve Fund.162
Reducing NFIP debt could lessen the need to raise premiums to pay interest and principal on
existing debt. For example, from FY2006 to FY2016 (i.e., since the NFIP borrowed funds
following Hurricane Katrina), the NFIP has paid $2.82 billion in principal repayments and $5.62
billion in interest to service the debt through the premiums collected on insurance policies.163
Currently the NFIP is paying over $400 million a year—over $1 million in interest per day—on
the debt accrued from past events.164 For example, the NFIP paid $438 million in interest in
FY2020165 and $418 million in FY2019.166 CBO estimated that retiring the debt would require
increasing annual payments from policyholders. For example, paying off the debt over 30 years at
an interest rate of 2.5% would entail annual payments of roughly $1.2 billion for principal and
interest.167
In addition to charging policyholders enough to pay for their current risk of flood losses, FEMA
has collected a reserve fund assessment since 2012, and an additional surcharge from all NFIP
policyholders since 2014 to help repay program debt. This creates a potential inequity because
policyholders are charged not only for the flood losses that they are expected to incur, but also for
losses incurred by past policyholders. Charging current policyholders for debt incurred in past
years runs contrary to generally accepted actuarial principles and private insurers’ pricing

158 P.L. 113-1.
159 FEMA, Watermark, FY2022, Third Quarter, https://www.fema.gov/sites/default/files/documents/fema_fy22-q3-
watermark.pdf.
160 For details of NFIP borrowing, see CRS Insight IN10784, National Flood Insurance Program Borrowing Authority,
by Diane P. Horn.
161 P.L. 115-72, Title III, §308.
162 42 U.S.C. §4017a.
163 FEMA, Watermark, FY2022, Third Quarter, https://www.fema.gov/sites/default/files/documents/fema_fy22-q3-
watermark.pdf.
164 FEMA, National Flood Insurance Program Debt Repayment Report as of September 30, 2019, September 15, 2020,
p. 10. Provided to CRS by FEMA Congressional Affairs Staff, January 4, 2020.
165 FEMA, Watermark, FY2021, Third Quarter, https://www.fema.gov/sites/default/files/documents/fema_fima-
watermark-FY2021-Q3.pdf.
166 FEMA, National Flood Insurance Program Debt Repayment Report as of September 30, 2019, September 15, 2020,
p. 10. Provided to CRS by FEMA Congressional Affairs Staff, January 4, 2020.
167 CBO Affordability, p. 26.
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practices.168 According to actuarial principles, a premium rate is based on the risk of future losses
and does not include past costs. For example, if in prior years a private insurance company’s
claims payments had exceeded the premiums collected, it would not recall those payments from
current or future policyholders.169
GAO has considered the option of eliminating FEMA’s debt to the Treasury, suggesting that if the
debt were eliminated, FEMA could reallocate funds used for debt repayment for other purposes
such as building a reserve fund and program operations, and arguing that this would also be more
equitable for current policyholders and consistent with actuarial principles.170 CBO suggested that
forgiving the NFIP’s debt would eliminate the need for large premium increases that would
otherwise be required to repay the debt.171
An affordability report by the National Research Council (NRC) of the National Academy of
Sciences considered the option of forgiving all or part of the NFIP debt within a larger
affordability context, suggesting that after forgiving all or part of the NFIP debt, Congress could
designate the Treasury as reinsurer for the NFIP. It proposed that Congress could, for example,
explicitly state that when the total annual losses in the NFIP exceeded some designated threshold
(e.g., $2 billion to $6 billion, perhaps on the basis of the average of noncatastrophic historical
claims years), the Treasury could provide funds for the NFIP to honor all claims. The funds could
be provided through the Disaster Relief Fund and, if needed, by an emergency supplemental
appropriation. The NRC suggested that, taken together, those two actions could result in lower
NFIP premiums, enhance affordability, and in turn lead to less spending on disaster assistance.
This would incur occasional costs by designating the Treasury as the source of funds for payment
of claims above the defined threshold in high-loss years but would not need to draw on the
Treasury each year to provide assistance to policyholders who face unaffordable premiums.172
The Build Back Better Act, as passed by the House on November 19, 2021, would have cancelled
the full $20.525 billion debt owed by the NFIP to the Treasury and directed FEMA to spend an
amount equal to the interest that the NFIP would have paid in servicing the cancelled debt for
flood mapping in FY2022 and FY2023. FEMA’s legislative proposals for the NFIP also
suggested cancelling the NFIP debt.173
Options to Reduce NFIP Debt
25. Eliminate NFIP interest payments to Treasury. The NFIP is currently paying over
$400 million a year in interest.174 If these interest payments were eliminated, this money
could be made available to reduce NFIP premiums, fund additional mitigation measures, or
fund other actions that could benefit NFIP policyholders.175

168 GAO Solvency, p. 16.
169 Ibid.
170 Ibid.
171 CBO Affordability, p. 26.
172 NRC Affordability Report 1, pp. 110-111.
173 FEMA, Legislative Proposals for the National Flood Insurance Program, https://www.fema.gov/sites/default/files/
documents/fema_flood-insurance-reform-proposal_5242022.pdf.
174 For example, the NFIP paid $415 million in interest in FY2019 and $438 million in FY2020. See FEMA,
Watermark, FY2021, Third Quarter, https://www.fema.gov/sites/default/files/documents/fema_fima-watermark-
FY2021-Q3.pdf.
175 For example, S. 3128 and H.R. 5802 in the 117th Congress would prohibit the Treasury from charging interest to the
NFIP for the five-year period beginning on the date of enactment.
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26. Cancel all or part of NFIP debt. Eliminating the NFIP debt would require Congress to
cancel debt outright, to appropriate funds for FEMA to repay the debt, or to change the law to
eliminate the requirement that FEMA repay the accumulated debt.176 GAO has suggested that
if FEMA’s debt to the Treasury were eliminated, FEMA could reallocate funds used for debt
repayment for other purposes such as building a reserve fund for catastrophic-loss years
and/or program operations, which would arguably be more equitable for current
policyholders.177
27. Change the way that losses from catastrophic storms are financed. If Congress were
to authorize supplements from the Treasury to be used for making NFIP claims payments in
catastrophic-loss years, this would reduce the cost to policyholders in paying these claims.
For example, FEMA’s report to Congress on privatization of the NFIP concluded that it is
difficult to imagine a practical system of flood insurance in which there is not some level of
government involvement in the flood risk financing chain. The report argued that when low-
frequency, high-magnitude events occur, the government will ultimately play a role in paying
for the economic costs associated with a catastrophic flood, whether or not it chooses to
underwrite the risk.178 The NFIP currently has no financial structure in place, other than
borrowing from the Treasury, to guarantee it can pay claims from a catastrophic-loss year.
The American Academy of Actuaries has argued that neither private insurers nor the NFIP
can fully absorb any level of catastrophic loss and continue to operate. It suggested that there
is a maximum amount of short-term loss that can be fully funded by NFIP revenue; Congress
could set a threshold for the maximum amount of losses that the NFIP would be expected to
fund fully. Beyond that threshold, the federal government would assume responsibility for
losses.179
28. Purchase additional reinsurance. The purchase of private market reinsurance180 reduces
the likelihood of FEMA needing to borrow from the Treasury to pay claims.181 In addition, as
GAO noted, reinsurance allows FEMA to price some of its flood risk up front through the
premiums it pays to the reinsurers rather than borrowing from Treasury after a flood.182 From
a risk management perspective, using reinsurance to cover losses in only the more extreme
years could help the federal government manage and reduce the volatility of its losses over
time. Transfer of risk to the private sector through reinsurance, however, is unlikely to lower
the overall cost of the NFIP because reinsurers understandably charge premiums to

176 42 U.S.C. §4016.
177 GAO Solvency, p. 16.
178 FEMA, National Flood Insurance Program Report to Congress on Reinsuring NFIP Insurance Risk and Options for
Privatizing the NFIP, August 13, 2015, p. 56, http://www.floods.org/ace-files/documentlibrary/2012_NFIP_Reform/
Reinsuring_NFIP_Insurance_Risk_and_Options_for_Privatizing_the_NFIP_Report.pdf.
179 American Academy of Actuaries Flood Insurance Work Group, The National Flood Insurance Program:
Challenges and Solutions, April 2017, pp. 28, 31, and 80, http://www.actuary.org/files/publications/
FloodMonograph.04192017.pdf.
180 Reinsurance is defined as a transaction between a primary insurer and another licensed (re)insurer where the
reinsurer agrees to cover all or part of the losses and/or loss adjustment expenses of the primary insurer. See National
Association of Insurance Commissioners, Glossary of Insurance Terms, http://www.naic.org/
consumer_glossary.htm#R.
181 FEMA began large-scale purchases of reinsurance in 2017. The specifics of each reinsurance purchase has varied,
but in general, the reinsurance has been designed to pay a certain percentage of the losses from a single, large-scale
event, with a higher percentage if losses are higher. See FEMA, National Flood Insurance Program’s Reinsurance
Program, https://www.fema.gov/flood-insurance/work-with-nfip/reinsurance.
182 GAO Solvency, p. 19.
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compensate for the risk they assume. The primary benefit of reinsurance is to transfer and
manage risk rather than to reduce the NFIP’s long-term fiscal exposure,183 and the purchase
of reinsurance would reduce future debt rather than make the program more affordable at
present.
Reduce Flood Damage Through Mitigation
FEMA defines mitigation as any sustained action to reduce or eliminate long-term risk to both
people and property from natural hazards and their effects.184 Flood mitigation creates safer
communities and can save money for individuals and taxpayers. The importance of FEMA’s
Hazard Mitigation Assistance (HMA) programs is illustrated by research findings that for every
$1 invested by FEMA in flood mitigation between 1993 and 2003, society as a whole saved $7
due to reduced future flood losses.185 If mitigation actions lead to lower damages and lower
expected claims, they could make NFIP policies less expensive for households that implement
them. An affordability program could be linked to mitigation loans or grants to reduce flood risk
over time.186 For example, homeowners could receive a loan or grant to make their property more
resistant to flood damage, which could reduce flood risk and lower the cost of flood insurance
premiums.
GAO suggested that instead of premium assistance, it would be preferable to address affordability
by providing assistance for mitigation measures that would reduce flood risk and enhance
resilience, and ultimately result in a lower premium rate.187 GAO has suggested on numerous
occasions that increasing mitigation activities would help to reduce flood risk and financial
exposure,188 including suggesting that FEMA could make mitigation activities mandatory, in
conjunction with targeted financial assistance for policyholders.189 In addition, property-level
mitigation measures can reduce NFIP policyholders’ premiums significantly. For example, FEMA
estimates that elevating a property in the SFHA one foot above Base Flood Elevation (BFE) could
result in a 30% reduction in annual premiums.190 The Association of State Floodplain Managers
calculated that elevating a property one foot above BFE could reduce annual flood insurance
premiums by over $1,000, while elevating a property two or three feet above BFE could reduce
premiums by over $1,400 and $1,500, respectively.191 Insurance provisions could also provide
incentives to limit flood damage by rewarding well-designed buildings with lower premiums,

183 Ibid.
184 FEM, Hazard Mitigation Assistance Guidance, Washington, DC, February 27, 2015, p. 1, https://www.fema.gov/
sites/default/files/2020-07/fy15_HMA_Guidance.pdf.
185 National Institute of Building Sciences, Natural Hazard Mitigation Saves: 2019 Report, Washington, DC, 2019, p.
37, https://www.nibs.org/files/pdfs/NIBS_MMC_MitigationSaves_2019.pdf. Note that the widely cited figure that $1
spent from federal grants saves $6 in future losses is an average across five hazards: riverine flood, hurricane surge,
wind, earthquake, and wildland-urban interface fire. The study did not have enough data to calculate a benefit-cost ratio
for federal grants for hurricane surge, but the benefit-cost ratio for federal grants for riverine flood is 7:1.
186 GAO Solvency, p. 43.
187 Ibid.
188 See, for example, GAO Solvency, p. 25.
189 GAO, Flood Insurance: More Information Needed on Subsidized Properties, GAO-13-607, July 3, 2013, p. 38,
https://www.gao.gov/products/gao-13-607.
190 FEMA, Help Clients Pay Less for Flood Insurance, https://agents.floodsmart.gov/retention/costs.
191 Association of State Floodplain Managers, The Costs & Benefits of Building Higher, June 30, 2017, p. 2,
https://www.lfma.org/assets/docs/Benefits-and-Costs-of-Freeboard-flyer-6-30-17.pdf. Note that these estimates are for
a single-family house, one floor, slab on grade foundation, with $200,000 of building coverage, $80,000 in contents
coverage, and $1,000 deductible, at 2017 prices.
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lower deductibles, or higher coverage limits. These incentives could also be made available to
existing properties that implement new flood mitigation measures.
The NFIP offers three programs that encourage individuals or communities to reduce flood risk:
Increased Cost of Compliance coverage, the Community Rating System, and the Flood Mitigation
Assistance (FMA) grant program. These programs are funded by premiums, fees, and surcharges
paid by NFIP policyholders. Reducing flood risk should lead to fewer NFIP claims over time and
less financial support from NFIP policyholders. In addition, protection against flooding is in itself
a benefit for households. Owners of mitigated properties may realize savings in a number of
ways. In particular, they may escape damage during floods and avoid costs of repair and
rebuilding.
Another way that the NFIP promotes mitigation is by requiring communities in the NFIP to adopt
minimum floodplain management standards. According to FEMA, the program saves the nation
an estimated $1.87 billion annually in flood losses avoided because of the NFIP’s building and
floodplain management regulations.192 Internal FEMA studies have found that structures built to
FEMA standards experience 65% less flood damage than structures not built to those standards,
saving the nation $2.4 billion in avoided flood losses each year and $100 billion over the past 40
years.193
Communities play a key role in mitigating flood risk through planning and building requirements.
FEMA does not regulate land use and does not have authority over local development. Rather, it
requires participating communities to adopt the minimum NFIP requirements through zoning,
floodplain ordinances, and/or building codes. FEMA has set forth these minimum standards in
federal regulations.194 Communities are required to adopt these minimum floodplain management
standards in order to participate in the NFIP.195 NFIP minimum standards include, among many
other conditions, that communities (1) require permits for development in SFHAs; (2) require
elevation of the lowest floor of all new residential buildings in the SFHA to be at or above BFE;
(3) restrict development in the regulatory floodway to prevent increasing the risk of flooding; and
(4) require certain construction materials and methods that minimize future flood damage.196
These requirements apply to new construction in the SFHA.
FEMA issued a request for public comment on revising the NFIP’s floodplain management
standards in October 2021, in response to a petition submitted by the Natural Resources Defense
Council and the Association of State Floodplain Managers.197 FEMA has not updated the NFIP
criteria for building and land use in flood-prone areas since they were implemented in 1976,198

192 GAO Solvency, p. 5.
193 Email from FEMA Congressional Affairs staff, January 25, 2021.
194 See 44 C.F.R. Part 60, particularly 44 C.F.R. §60.3.
195 42 U.S.C. §4022(a)(1).
196 44 C.F.R. §60.3.
197 Natural Resources Defense Council and the Association of State Floodplain Managers, Petition Requesting That the
Federal Emergency Management Agency Amend Its Regulations Implementing the National Flood Insurance Program,
Washington, DC, January 5, 2021, https://www.nrdc.org/sites/default/files/petition-fema-rulemaking-nfip-
20210105.pdf.
198 FEMA, “Request for Information on the National Flood Insurance Program’s Floodplain Management Standards for
Land Management and Use, and an Assessment of the Program’s Impact on Threatened and Endangered Species and
Their Habitats,” 86(194) Federal Register 56713-56719, October 12, 2021.
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despite growing flood risk and the existence of more protective standards at the state and local
levels.199
Property-Level Mitigation
The main source of funding for property-level mitigation measures is Increased Cost of
Compliance (ICC) coverage, which is in effect a separate insurance policy to offset the expense
of complying with more rigorous building code standards when local ordinances require them to
do so. The NFIP requires most policyholders200 to purchase ICC coverage. ICC coverage is
authorized in law, and rates for the coverage, as well as how much can be paid out for claims, are
set by FEMA.201 The ICC policy has a separate rate premium structure and provides an amount
up to $30,000 in payments for certain eligible expenses. For example, ICC claims payments may
be used toward the costs of elevating, demolishing, relocating, or flood-proofing nonresidential
buildings, or any combination of these actions. According to ICC data, elevation is the most
common form of mitigation.202 Although the cost of elevating a structure depends on the type of
building and elevation requirement, the average cost of elevating an existing property has been
estimated at $33,239 to $91,732,203 and suggestions have been made for years that the amount of
ICC coverage should be raised.204
At the household level, there are currently few mitigation actions that lower premiums. The most
commonly used interventions are structural elevation and flood-proofing (under certain
circumstances).205 However, even with the potential benefits of reduced future losses and
decreased premiums, mitigation activities often require large upfront costs. Such risk reduction
measures may be too expensive for many policyholders, and additional sources of funding may
be needed, such as mitigation grants or loans. Such products could take the form of a stand-alone
program or could be used in conjunction with other affordability approaches. The type of support
for property-level mitigation activities could also be mixed: for example, grants could be made
available for lower-income or cost-burdened households, and loans made available to households
above this threshold.

199 Natural Resources Defense Council and the Association of State Floodplain Managers, Petition Requesting That the
Federal Emergency Management Agency Amend Its Regulations Implementing the National Flood Insurance Program,
Washington, DC, January 5, 2021, p. 48, https://www.nrdc.org/sites/default/files/petition-fema-rulemaking-nfip-
20210105.pdf.
200 For example, ICC coverage is not required on condominium units and content-only policies.
201 42 U.S.C. §4011(b).
202 See, for example, FEMA, NFIP: Use of Increased Cost of Compliance Coverage, FY2009 Report to Congress,
October 2009, p. 6. Report provided to CRS by FEMA Congressional Affairs Staff, and Natural Resources Defense
Council and the Association of State Floodplain Managers, Petition Requesting That the Federal Emergency
Management Agency Amend Its Regulations Implementing the National Flood Insurance Program, Washington, DC,
January 5, 2021, p. 48, https://www.nrdc.org/sites/default/files/petition-fema-rulemaking-nfip-20210105.pdf.
203 Aerts, J.C.J.H., Botzen, W.J.W., Moel, H. de, et al., “Cost Estimates for Flood Resilience and Protection Strategies
in New York City,” Annals of the New York Academy of Sciences, vol. 1294, no. 1 (August 2013), pp. 22-26.
204 See, for example, FEMA, NFIP: Use of Increased Cost of Compliance Coverage, FY2009 Report to Congress,
October 2009, p. 32.
205 See FEMA, Flood Insurance Manual, 3. How to Write, p. 3-41, revised October 1, 2022, https://www.fema.gov/
sites/default/files/documents/fema_nfip-flood-insurance-full-manual_102022.pdf.
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Risk Rating 2.0 currently provides credits for three mitigation actions: (1) installing flood
openings according to the criteria in 44 C.F.R. §60.3;206 (2) elevating onto posts, piles, and piers;
and (3) elevating machinery and equipment above the lowest floor.207
Community-Level Mitigation and Floodplain Management Standards
Some additional community-level mitigation measures could lead to lower NFIP premiums by
removing properties from the SFHA, reducing the flood risk to individual properties, or by
increasing a community’s score in the Community Rating System (CRS).
The CRS is a voluntary incentive-based program that rewards communities for adopting
floodplain management practices to a higher standard than the NFIP minimum standards by
providing reduced-cost flood insurance premiums to policyholders in the community.208 FEMA
awards points that increase a community’s “class” rating in the CRS on a scale of 1 to 10, with 1
being the highest ranking. Points are awarded for an array of improvements related to how the
community informs its public on flood risk, maps and regulates its floodplain, reduces possible
flood damage, and provides immediate warnings and responds to flooding incidents.209 Starting at
Class 9, policyholders in the SFHA within a CRS community receive a 5% discount on their SFIP
premiums, with increasing discounts of 5% per class until reaching Class 1, at which those
policyholders can receive a 45% discount.
Options that improve a community’s CRS score will directly lower households’ premiums by
increasing the CRS discount on premiums. In addition, the CRS program provides an average
13.3% discount on SFIP premiums across the NFIP,210 which is cross-subsidized into the NFIP
program, such that the discount for one community ends up being offset by increased premium
rates in all communities across the NFIP. Therefore, the average 13.3% discount for CRS
communities is cross-subsidized and shared across NFIP communities through a cost (or load)
increase of 15.3% to overall premiums.211
The Flood Mitigation Assistance (FMA) Program212 awards grants for a number of purposes, with
the goal of mitigating flood-damaged properties to reduce or eliminate future NFIP claims,
particularly from repetitive loss and severe repetitive loss properties. FMA funds mitigation
activities such as state and local mitigation planning; the elevation, relocation, demolition, or
flood proofing of structures; the acquisition of properties; and other activities.213 FMA funding is
available only to communities that participate in the NFIP. FMA grants are not available to
individuals, although communities may apply for funding that benefits individual NFIP
policyholders.

206 44 C.F.R. Part 60, Criteria for Land Management and Use, https://www.govinfo.gov/content/pkg/CFR-2012-title44-
vol1/pdf/CFR-2012-title44-vol1-sec60-3.pdf.
207 See FEMA, Flood Insurance Manual: How to Write, pp. 3-26 to 3-29, revised October 1, 2022,
https://www.fema.gov/sites/default/files/documents/fema_nfip-flood-insurance-full-manual_102022.pdf.
208 42 U.S.C. §4022(b)(1).
209 For a full listing of possible creditable activities in the Community Rating System, see FEMA, NFIP Community
Rating Coordinator’s Manual 2017, https://www.fema.gov/media-library-data/1493905477815-
d794671adeed5beab6a6304d8ba0b207/633300_2017_CRS_Coordinators_Manual_508.pdf.
210 Email correspondence from FEMA Congressional Affairs staff, October 22, 2020.
211 Ibid.
212 42 U.S.C. §4104c.
213 For additional information on the FMA Program, see 44 C.F.R. Part 78, and FEMA’s website at
https://www.fema.gov/grants/mitigation/floods.
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Providing increased federal funding for FMA could reduce flood risks and thus decrease the
contributions to mitigation funding from NFIP policyholders. The annual amount available for
FMA from FY2015 through FY2020 has varied between $150 and $200 million.214
The Infrastructure Investment and Jobs Act (IIJA)215 appropriated $3.5 billion for the FMA
program, with $700 million for each of FY2022 through FY2026. This represents a significant
increase in the amount of funding available for flood mitigation, and the first time that funding
has been appropriated for the FMA program.216
Other mitigation measures that reduce flood risk, particularly at the community level, may not
lead directly to a reduction in flood insurance premiums for residents of that community, but may
lead to reduced insurance claims, which would benefit NFIP finances as a whole.
Options to Encourage Property-Level Mitigation Activities
29. Provide premium discounts for additional property-level mitigation activities.
Congress could require FEMA to identify additional property-level mitigation activities for
which NFIP policyholders could receive a reduced premium. To do this, FEMA would need
to develop data and analyses that would link the measures’ expected reduction in insurance
losses to insurance premiums.217
30. Provide grants or loans to allow homeowners and businesses to introduce property-
level mitigation activities. This could take the form of increasing funding available through
the NFIP FMA program or FEMA’s other Hazard Mitigation Assistance programs,218 or by
introducing new grant or loan programs for individuals and businesses. Currently, individuals
and businesses cannot apply directly for mitigation funding. Mitigation grants or loans could
be targeted to policyholders who meet defined criteria for affordability assistance, or targeted
to certain types of properties. For example, mitigation funds could be targeted to those for
whom the cost of NFIP premiums creates an affordability challenge, or for whom the cost of
carrying out mitigation measures could be prohibitive, or to households that have little access
to commercial credit.219 Financial incentives could also be offered to encourage households in
flood-prone areas to relocate outside the SFHA.
31. Provide grants or loans targeted at repetitive loss and severe repetitive loss
properties. A relatively small number of NFIP properties that are repeatedly flooded
contribute disproportionately to NFIP claims. Properties that have suffered multiple flood
losses, known as repetitive loss (RL), and severe repetitive loss (SRL) properties are at
greater risk than the average property insured by the NFIP. In the past 30 years, one out of
every six dollars paid out in NFIP claims has gone to a building with a history of multiple
floods; approximately $10.9 billion in claims have been paid on properties with two or more
losses, accounting for over 15% of FEMA’s total of $70.6 billion claims paid during the same

214 See Table 5 in CRS Report R44593, Introduction to the National Flood Insurance Program (NFIP), by Diane P.
Horn and Baird Webel.
215 P.L. 117-58.
216 NFIP policyholders contributed an additional $100 million towards the FMA program in FY2022. See Department
of Homeland Security (DHS), Notice of Funding Opportunity (NOFO), Fiscal Year 2022 Flood Mitigation Assistance,
August 5, 2022, p. 6, https://www.fema.gov/sites/default/files/documents/fema_fy22-fma-nofo_08052022_0.pdf.
217 NRC Affordability Report 1, p. 108.
218 See CRS Insight IN11187, Federal Emergency Management Agency (FEMA) Hazard Mitigation Assistance, by
Diane P. Horn.
219 NRC Affordability Report 1, p. 103.
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period.220 For such properties, the benefits of reduced flood risk and lower premiums may
exceed the costs of mitigation. Targeting mitigation grants and/or loans at RL and SRL
properties could reduce both the premiums paid by these policyholders and the overall fiscal
risk to the NFIP.221
32. Offer tax deductions or tax credits for mitigation activities. The cost burden of flood
mitigation investments could be lowered through tax deductions and tax credits. At various
times, Congress has passed legislation to provide tax relief to support recovery following
disasters,222 and such policy tools could be used to encourage mitigation activities. Tax credits
generally provide greater financial assistance as they lower the actual amount of tax paid.223
However, neither tax credits nor tax deductions may provide broad relief, and do not
necessarily target those in need of financial assistance. Tax credits benefit only those owing
tax, unless the credit is refundable and a refund is given if the filer owes less tax than the
credit. A tax deduction benefits only those paying income tax, and the value of the deduction
depends on the taxpayer’s marginal tax rate. In addition, policyholders could face cash flow
challenges because they would generally need to pay the full premium before they receive the
tax benefit.224
33. Establish tax-deductible disaster savings accounts for mitigation activities. Pre-tax
funds placed in disaster savings accounts could be used to cover hazard mitigation
investments, or could cover disaster damages or flood insurance premiums. Funds could be
contributed pre-tax, and amounts withdrawn for designated uses would not be taxed.225 These
accounts could also be used to cover homeowner expenses below their insurance policy
deductible. This might encourage homeowners to increase the deductible, which would
reduce the NFIP premium for that policy. As with tax deductions, the financial benefit to a
household would depend on their marginal tax rate. In addition, a disaster savings account
would not help those whose disposable income is not enough to allow them to put funds into
a savings account.226
Options to Encourage Community-Level Flood Risk Reduction Measures
34. Improve a community’s Community Rating System score. A community could join
the CRS or, if already participating in the CRS, carry out additional activities to improve its
CRS class rating, thereby increasing the discount that residents receive on their flood
insurance premiums. In particular, communities could focus on activities that receive a higher
number of points, such as adoption of higher regulatory standards, open space preservation,
flood protection, or acquisition and relocation of high-risk properties. For every step that a
community’s CRS rating increases, residents receive an additional 5% increase in their NFIP
premium discount. Congress could also provide greater incentives for communities to

220 FEMA, “Request for Information on the National Flood Insurance Program’s Floodplain Management Standards for
Land Management and Use, and an Assessment of the Program’s Impact on Threatened and Endangered Species and
Their Habitats,” 86(194) Federal Register 56713-56719, October 12, 2021.
221 GAO, National Flood Insurance Program: Fiscal Exposure Persists Despite Property Acquisitions, GAO-20-509,
June 25, 2020, p. 34, https://www.gao.gov/assets/710/707821.pdf.
222 See CRS Report R45864, Tax Policy and Disaster Recovery, by Molly F. Sherlock and Jennifer Teefy.
223 Ibid.
224 GAO Affordability Assistance, p. 2.
225 GAO Affordability Assistance, pp. 106-107.
226 GAO Affordability Assistance, p. 107.
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participate in the CRS, perhaps by increasing the discounts for CRS class ratings. Congress
could provide funding for technical assistance or staffing to small communities to enable
them to join and participate in the CRS. Congress could direct FEMA to increase the CRS
points for flood damage reduction activities that directly reduce flood risk.
35. Encourage the use of green infrastructure and nature-based solutions to reduce
flood risk. Nature-based solutions make use of natural processes and ecosystem services for
functional purposes, such as living shorelines, where natural habitats such as oyster reefs,
mangroves, and salt marshes are used to hold the shoreline in place. FEMA recently elevated
the CRS credits for nature-based solutions.227 The number of points awarded for preserving
open space is now among the highest given in the CRS. Credits are awarded according to the
percentage of open space in a community’s floodplain. The larger the percentage, the more
credit is awarded.228 Nature-based solutions may also provide benefits beyond mitigating the
effects of natural hazards, such as improved water and air quality, healthier natural habitats,
and added recreational space.
36. Increase federal funding for flood mitigation. Congress could appropriate funding for
NFIP flood mitigation, rather than requiring the FMA program to be funded entirely by NFIP
policyholders.229 For example, the IIJA appropriated $3.5 billion for FMA, with $700 million
for each of FY2022 through FY2026. Congress could also provide additional funding to other
hazard mitigation programs,230 which could potentially benefit NFIP communities.
37. Increase the federal cost share of mitigation grants. Congress could increase the
federal cost share on mitigation grants, and could target this assistance toward particular
types of communities. The cost share for the FMA program is usually 75% federal, 25%
nonfederal. However, the cost share is 90% federal, 10% nonfederal for repetitive loss
properties, and 100% federal for severe repetitive loss properties. Despite this, obtaining
funding for the nonfederal cost share may be difficult for some communities, and Congress
could increase the federal cost share to make it possible for such communities to carry out
mitigation activities. For example, FEMA intends to reduce the FMA cost share for certain
disadvantaged communities in FY2022, as part of the Justice40 Initiative,231 by using the
Centers for Disease Control and Prevention (CDC) Social Vulnerability Index (SVI)232 at the

227 FEMA, Addendum to the 2017 CRS Coordinator’s Manual, January 2021, pp. A-6 to A-9, https://www.fema.gov/
sites/default/files/documents/fema_community-rating-system_coordinator-manual_addendum-2021.pdf.
228 FEMA, Building Community Resilience with Nature-Based Solutions: A Guide for Local Communities, Washington,
DC, August 6, 2020, p. 18, https://www.fema.gov/sites/default/files/2020-08/fema_riskmap_nature-based-solutions-
guide_2020.pdf.
229 The Infrastructure Investment and Jobs Act (IIJA), P.L. 117-58, appropriates $3.5 billion for the NFIP Flood
Mitigation Assistance Program, with $700 million for each of FY2022 through FY2026. This represents a significant
increase in the amount of funding available for flood mitigation, and the first time that funding has been appropriated
for the FMA program. NFIP policyholders contributed an additional $100 million towards the FMA program in
FY2022. See Department of Homeland Security (DHS), Notice of Funding Opportunity (NOFO), Fiscal Year 2022
Flood Mitigation Assistance, August 5, 2022, p. 6, https://www.fema.gov/sites/default/files/documents/fema_fy22-fma-
nofo_08052022_0.pdf.
230 For more information about FEMA Hazard Mitigation Assistance, see CRS Report R46989, FEMA Hazard
Mitigation: A First Step Toward Climate Adaptation, by Diane P. Horn and CRS Insight IN11733, Recent Funding
Increases for FEMA Hazard Mitigation Assistance, by Diane P. Horn.
231 Executive Office of the President, Office of Management and Budget, Memorandum for the Heads of Departments
and Agencies, M-21-28, Washington, DC, July 20, 2021, p. 12, https://www.whitehouse.gov/wp-content/uploads/2021/
07/M-21-28.pdf.
232 The Centers for Disease Control and Prevention/Agency for Toxic Substances and Disease Registry (CDC/ATSDR)
Social Vulnerability Index (SVI) uses United States Census Data to determine the social vulnerability of every census
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census tract level at a threshold of 0.7501 or greater as a priority scoring criterion.233 In
addition, the funding appropriated to FMA under the IIJA will provide a 90% federal cost
share for a property that is (1) located in a census tract with a CDC SVI score of not less than
0.5001, or (2) that serves as a primary residence for individuals with a household income of
not more than 100% of the applicable area median income.
38. Require stronger building codes for new buildings and damaged buildings. Flood
risks can also be reduced at the building level. A 2019 study found that, on average, society
saves $5 for every dollar spent on mitigation measures that exceed building code
requirements for areas at risk of flooding from rivers, and $7 for areas at risk of hurricane
surge flooding.234 Although building codes are adopted and administered at a community
level, the federal government can create incentives for communities to adopt and enforce up-
to-date building codes and hazard-resistant design standards.235 For example, FEMA’s
Mitigation Framework Leadership Group suggested that federal programs could be directed
to promote the adoption of building codes and other mitigation requirements though
incentives such as a higher federal cost share,236 discounts on insurance premiums, tax
credits, or access to additional grants or loans.237 FEMA could also provide funding
specifically for retrofitting existing buildings.
39. Increase minimum floodplain management standards for NFIP participation. When
communities join the NFIP, they must adopt and enforce FEMA’s minimum floodplain
management standards, including those that regulate where and how structures may be built
within the floodplain. These standards are minimum requirements for NFIP participation;
states and communities can elect to adopt higher standards as a means of mitigating flood
risk.238 For example, FEMA minimum standards require that the elevation of the lowest floor

tract, ranked on 15 social factors. SVI scores range from 0 to 1, with 1 representing the highest level of social
vulnerability. For example, a SVI ranking of 0.75 means that 75% of census tracts in the nation are less vulnerable than
the tract of interest. See CDC/ATSDR SVI Fact Sheet, https://www.atsdr.cdc.gov/placeandhealth/svi/fact_sheet/
fact_sheet.html, and CDC SVI 2018 Documentation, https://www.atsdr.cdc.gov/placeandhealth/svi/documentation/pdf/
SVI2018Documentation-H.pdf.
233 DHS, Notice of Funding Opportunity (NOFO), Fiscal Year 2021 Flood Mitigation Assistance, p. 4,
https://www.fema.gov/sites/default/files/documents/fema_nofo-fiscal-year-2021-flood-mitigation-assistance-grants.pdf.
234 National Institute of Building Sciences, Natural Hazard Mitigation Saves: 2019 Report, Washington, DC, 2019, p.
37, https://www.nibs.org/files/pdfs/NIBS_MMC_MitigationSaves_2019.pdf.
235 For example, FEMA defines a hazard-resistant building code as a “building code with provisions that provide a
minimum level of building protection against natural hazards,” and considers a community to be hazard resistant if it
adopts either of the two most recent editions of building codes without weakening provisions related to flood, hurricane
wind, and seismic hazards. FEMA, Building Codes Saves: A Nationwide Study, November 2020, p. xi and p. 3-4,
https://www.fema.gov/sites/default/files/2020-11/fema_building-codes-save_study.pdf.
236 See, for example, Section 20606 of the Bipartisan Budget Act of 2018 (P.L. 115-123) as it amends Stafford Act
Section 406(b) to authorize an increased federal share for Public Assistance to provide incentives to governments to
“invest in measures that increase readiness for, and resilience from, a major disaster,” which may include “encouraging
the adoption and enforcement of the latest published editions of relevant consensus-based codes, specifications, and
standards.”
237 Department of Homeland Security, Mitigation Framework Leadership Group, National Mitigation Investment
Strategy, Washington, DC, August 2019, p. 16, https://www.fema.gov/sites/default/files/2020-10/fema_national-
mitigation-investment-strategy.pdf.
238 In October 2021, FEMA issued a request for information on the NFIP’s floodplain management standards. The
public comment period ended on January 27, 2022. See FEMA, “Request for Information on the NFIP’s Floodplain
Management Standards for Land Management and Use, and an Assessment of the Program’s Impact on Threatened and
Endangered Species and Their Habitats; Public Meeting; Extension of Comment Period,” 86 (222) Federal Register
66329-66330, November 22, 2021.
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of all new residential buildings in the SFHA to be at or above BFE.239 However,
approximately 38% of the U.S. population lives outside of areas with at least one foot of
freeboard.240 A community could require the elevation of the lowest floor to be above BFE, or
to BFE plus a freeboard241 of a defined number of feet above BFE. FEMA has found that the
average annual losses avoided for freeboard structures was approximately $484 million.242
40. Require stricter controls on development in the floodplain. Communities play a key
role in mitigating flood risk through planning requirements, particularly planning controls
that restrict or eliminate new development in hazardous locations and discourage rebuilding
in high-risk locations. The NFIP could require stricter standards related to floodplain
development or provide greater incentives to limit development in the floodplain. For
example, local governments could offer incentives to encourage developers to locate projects
outside of the SFHA and/or to adopt flood mitigation measures that exceed those required by
law. Another option is the use of conditional land use restrictions, which might require a
landowner to restrict future use of the land by allowing limited rebuilding, by totally
prohibiting rebuilding or by allowing reconstruction with conditions (e.g., that they will
remove structures when threatened by erosion or inundation). The NFIP could also require
communities to delineate floodplains based on potential future development and apply higher
standards for those areas.243
Concluding Comments
FEMA does not currently have the authority to implement an affordability program, nor does the
NFIP’s current rate structure provide the funding required to support one. If an affordability
program were to be funded from existing NFIP funds, it would require either raising flood
insurance rates for NFIP policyholders or diverting resources from another existing use. If
Congress were to appropriate funding for an affordability program,244 either Congress or FEMA
would face decisions on how to structure this program. Choosing among affordability program
options, alone or in combination, requires an evaluation of their effects not only on premiums for
households for which NFIP premiums create a cost burden, but also on NFIP net revenues,
expenditures from federal general revenues, and take-up rates.245

239 See 44 C.F.R. Part 60, particularly 44 C.F.R. §60.3.
240 National Institute of Building Sciences, Natural Hazard Mitigation Saves: 2019 Report, Washington, DC, 2019, p.
69, https://www.nibs.org/files/pdfs/NIBS_MMC_MitigationSaves_2019.pdf.
241 FEMA defines freeboard as an additional amount of height above the Base Flood Elevation used as a factor of safety
in determining the level at which a structure’s lowest floor must be elevated or floodproofed to be in accordance with
the state or community floodplain management standards. See https://www.fema.gov/glossary/freeboard.
242 FEMA, Building Codes Saves: A Nationwide Study, November 2020, p. 4-17, https://www.fema.gov/sites/default/
files/2020-11/fema_building-codes-save_study.pdf.
243 Natural Resources Defense Council and the Association of State Floodplain Managers, Petition Requesting That the
Federal Emergency Management Agency Amend Its Regulations Implementing the National Flood Insurance Program,
Washington, DC, January 5, 2021, pp. 46-47, https://www.nrdc.org/sites/default/files/petition-fema-rulemaking-nfip-
20210105.pdf.
244 For example, the funding which would have been appropriated in the House-passed version of the Build Back Better
Act.
245 Carolyn Kousky, Brett Lingle, Howard Kunreuther, et al., Moving the Needle on Closing the Flood Insurance Gap,
Wharton Risk Management and Decision Processes Center, Issue Brief, Philadelphia, PA, February 13, 2019, p. 9,
https://riskcenter.wharton.upenn.edu/wp-content/uploads/2019/02/Moving-the-Needle-on-Closing-the-Flood-
Insurance-Gap.pdf.
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Evaluation of policy options that would make NFIP premiums more affordable would require the
ability to estimate the effect of each one on NFIP premium revenues and affordability. Some of
the specific options discussed in this report may have conflicting or cascading impacts, so that
movement toward one goal may make others harder to accomplish. For example, increased
consumer participation could increase the size and scope of the NFIP, but could potentially
increase federal fiscal exposure.246 Congress and other stakeholders may want answers to
questions with a specific focus on location where premiums would change, such as “What are the
effects in a particular congressional district for various groups of property owners?” or “Where
are the effects concentrated?”247
Flooding is already the costliest natural disaster annually in the United States, and more frequent
and intense flooding from climate change represents an increasing threat in the future.248 The risk
exposure of the NFIP will change over time, particularly due to the likelihood of increasing flood
risk and continued development in flood-prone areas, with an increased number of properties
likely to be identified as being at risk of flooding.249 A 2013 report on the impact of climate
change and population growth on the NFIP concluded that nationally, considering fluvial and
coastal floods together, the SFHA is projected to be 40%-45% larger by 2100, with approximately
70% of this increase due to climate change.250
The decision about who pays for affordability assistance entails choices on the part of
policymakers. For example, one choice relates to the degree to which costs are borne by federal
taxpayers versus the NFIP policyholders who do not receive assistance but pay for assistance to
others through a cross-subsidy. Another consideration is the degree to which affordability
program costs are borne nationally versus more locally (by states, tribal nations, or communities)
or are shared by federal and local governments.251 A number of stakeholders have argued that an
effective affordability program should be funded not by premium discounts or surcharges on
other NFIP policyholders, but rather by a source external to the NFIP.252 For example, GAO
argued that providing premium assistance through appropriations rather than discounted
premiums would address the policy goal of making the fiscal exposure more transparent because
any affordability discounts on premium rates would be explicitly recognized in the budget each

246 GAO Solvency, p. 33.
247 National Research Council of the National Academies, Affordability of National Flood Insurance Program
Premiums: Report 2, 2016, p. 26, http://www.nap.edu/catalog/21848/affordability-of-national-flood-insurance-
program-premiums-report-2.
248 U.S. Government Accountability Office, FEMA Flood Maps: Better Planning and Analysis Needed to Address
Current and Future Flood Hazards, GAO-22-104079, October 25, 2021, p. 41, https://www.gao.gov/assets/gao-22-
104079.pdf.
249 See, for example, Natural Resources Defense Council and the Association of State Floodplain Managers, Petition
Requesting That the Federal Emergency Management Agency Amend Its Regulations Implementing the National
Flood Insurance Program, Washington, DC, January 5, 2021, pp. 5-11, https://www.nrdc.org/sites/default/files/petition-
fema-rulemaking-nfip-20210105.pdf.
250 AECOM, in association with Michael Baker Jr., Inc., and Deloitte Consulting, LLP, The Impact of Climate Change
and Population Growth on the National Flood Insurance Program Through 2100, Prepared for Federal Insurance and
Mitigation Administration, FEMA, June 2013, pp. 5-12 and 5-13, https://aecom.com/content/wp-content/uploads/2016/
06/Climate_Change_Report_AECOM_2013-06-11.pdf.
251 NRC Affordability Report 1, p. 94.
252 See, for example, GAO Affordability Assistance, p. 22, and GAO Solvency, p. 27.
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year,253 and would make NFIP subsidy costs explicit by requiring Congress to appropriate funds
for them.254
A central question in any reform of the NFIP is who should bear the costs of floodplain
occupancy in the future. The 2015 National Research Council study on flood insurance
affordability concluded that the costs of floods can be borne in three possible ways, or in some
combination of them.
 Individual policyholders (whether NFIP or private) bear floodplain location cost
in the form of insurance premiums paid and damages falling within policy
deductible amounts.
 Federal taxpayers bear floodplain location costs if the federal government (1)
develops a premium assistance program; (2) makes up for NFIP premium
revenue shortfalls; (3) pays for pre-flood mitigation; or (4) makes post-flood
disaster assistance payments to individual households.
 Property owners and other floodplain or coastal zone inhabitants bear the costs
for losses that are uninsured or otherwise uncompensated.255
Reform of the NFIP would reallocate costs across these groups; Congress would face decisions
on how that occurs.

253 GAO Solvency, p. 27.
254 GAO Affordability Assistance, p. 39.
255 National Research Council of the National Academies, Affordability of National Flood Insurance Program
Premiums: Report 2, 2016, p. 12, http://www.nap.edu/catalog/21848/affordability-of-national-flood-insurance-
program-premiums-report-2.
Congressional Research Service

34

link to page 38 link to page 38 link to page 38
Table 1. Legislative Proposals Related to NFIP Affordability
Increase
Make NFIP
Encourage Property-
Encourage
Participation in
Premiums More
Level Flood
Community-Level
Increase NFIP
Congress
the NFIP
Affordable
Mitigation
Flood Mitigation
Income
Reduce NFIP Debt
117th Congress
S. 3128 §108a
H.R. 4497 §308
S. 3218 §§202, 204, 306
H.R. 4497 §307
S. 3128 §208, 303
H.R. 4497 §307

S. 3128 §§102, 103,

S. 3128 §§201, 203,

S. 3128 §301
104, 106, 107, 209
204, 205, 206, 207, 210

H.R. 1449, §2

P.L. 117-58.

H.R. 5376, §40104.
116th Congress
H.R. 3167 §§305,
H.R. 3167 §§102,
H.R. 3167 §§301, 303
S. 3167 §§105, 302,
H.R. 3167 §201
H.R. 3167 §§301, 403
401, 408
103, 104, 106, 107,
306, 307, 308
209, 304, 402

S. 2187b §108
S. 2187 §§102,
S. 2187 §§202, 204, 306
S. 2187 §§201, 203,
S. 2187 §§208, 303
S. 2187 §301
103,104,106,107, 209
204, 205, 206, 207, 210

S. 2266 §3

115th Congress
H.R. 2874 §§507, 513 H.R. 2874 §§102,
H.R. 2874 §§113, 403,

H.R. 2874 §504
H.R. 2874 §§504, 505
103, 111, 112, 202
504

S. 1313 §102
S. 1313 §§205, 206,
S. 1313 §§204, 206
S. 1313 §201
S. 1313 §§403, 404,

207, 208, 401
501

S. 1368c §410
S. 1368 §§102, 103,
S. 2168 §§201, 206
S. 1368 §§202, 207,
S. 1368 §§204, 303
S. 1368 §301
204, 208
422

S. 1571 §303
S. 1571 §301
S. 1571 §§103, 106
S. 1571 §107
S. 1571 §201

114th Congress
H.R. 3297 §10

113th Congress

H.R. 3013 §6
H.R. 1268 §2

H.R. 3294 §§3, 4
H.R. 3298 §2

Source: CRS analysis of legislation from https://www.congress.gov.
Notes: H.R. 5376 as passed by the House on November 19, 2021.
a. S. 3128 and companion bil H.R. 5802
b. S. 2187 and companion bil H.R. 3872
c. S. 1368 and companion bil H.R. 3285
CRS-35

Options for Making the National Flood Insurance Program More Affordable

Author Information

Diane P. Horn

Specialist in Flood Insurance and Emergency
Management

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
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Congressional Research Service
R47000 · VERSION 6 · UPDATED
36

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